BILL NUMBER: AB 2903	CHAPTERED  09/29/00

	CHAPTER   857
	FILED WITH SECRETARY OF STATE   SEPTEMBER 29, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 28, 2000
	PASSED THE SENATE   AUGUST 31, 2000
	PASSED THE ASSEMBLY   AUGUST 31, 2000
	AMENDED IN SENATE   AUGUST 29, 2000
	AMENDED IN SENATE   JULY 5, 2000
	AMENDED IN ASSEMBLY   MAY 3, 2000

INTRODUCED BY   Committee on Health (Gallegos (Chair), Bates (Vice
Chair), Aanestad, Corbett, Cox, Firebaugh, Kuehl, Runner, Thomson,
Vincent, Wayne, Wesson, and Zettel)

                        MARCH 14, 2000

   An act to amend Sections 1618.5, 4382, 4999, 4999.4, 4999.6, and
4999.7 of the Business and Professions Code, Sections 43.98, 56.17,
and 3296 of the Civil Code, Sections 10821 and 13408.5 of the
Corporations Code, Sections 1322, 6253.4, 6254.5, 11552, 13975,
13975.2, 21661, 31696.1, and 37615.1 of the Government Code, Sections
1317.2a, 1317.6, 1341, 1341.1, 1341.2, 1341.3, 1341.6, 1341.7,
1342.3, 1342.5, 1343, 1346.5, 1347, 1357.16, 1363, 1367.25, 1367.695,
1368.02, 1368.2, 1371.4, 1373.95, 1374.30, 1374.32, 1380, 1380.1,
1383.15, 1391.5, 1396.6, 1397.5, 11758.47, 32121, 102910, 127580, and
128725 of, and to repeal Section 1398 of, the Health and Safety
Code, to amend Sections 740, 742.407, 742.435, 791.02, 1068, 1068.1,
10123.35, 10123.68, 10140.1, 10169, 10169.2, 10169.3, 10169.5, 10196,
10270.98, 10704, 10733, 10734, 10810, 10820, 10856, 12693.36,
12693.365, 12693.37, and 12695.18 of the Insurance Code, to amend
Section 4600.5 of the Labor Code, to amend Section 830.3 of the Penal
Code, to amend Sections 5777, 9541, 14087.32, 14087.36, 14087.37,
14087.38, 14087.4, 14087.9705, 14088.19, 14089, 14089.4, 14139.13,
14251, 14308, 14456, 14457, 14459, 14460, 14482, and 14499.71 of the
Welfare and Institutions Code, relating to health care coverage.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 2903, Committee on Health.  Health care coverage:  telephone
medical advice services.
   (1) Existing law provides for the regulation and licensing of
health care service plans by the Department of Managed Care.
   This bill would rename the Department of Managed Care as the
Department of Managed Health Care.  This bill would make various
conforming changes.
   (2) Existing law prohibits the department's director and
designated staff members from holding interests, as specified, in a
health care service plan during their association with the
department.
   This bill would specify that this provision does not prohibit
these personnel, as well as any employee of the department, from
obtaining as an enrollee or subscriber health care services from a
health care service plan.
   (3) Under existing law, a group health care service plan that
provides coverage for outpatient prescription drug benefits is
required to include coverage for contraceptive methods unless a
religious employer, as defined, requests a contract without this
particular coverage.  Existing law specifies that this provision,
exempting coverage for contraceptive methods if requested by a
religious employer, shall not be construed to deny an enrollee
coverage and timely access to contraceptive methods.
   This bill would delete this construction provision.
   (4) Existing law provides, effective January 1, 2001, for the
establishment of an Independent Medical Review System to review
grievances involving a disputed health care service under a health
care service plan and under a disability insurance contract.  Under
existing law, a disputed health care service is defined, for
provisions pertaining to health care service plans, as excluding
services provided by a specialized health care service plan unless
the service is provided pursuant to a contract with a health care
service plan, and for provisions pertaining to disability insurance
contracts, this term is defined as excluding services provided by a
group policy of vision-only or dental-only coverage unless the
service is provided pursuant to a contract with a disability insurer.

   This bill would specifically require that the health care service
plan and the disability insurer cover hospital, medical, or surgical
benefits in order for the services they provide through a contract
with a specialized health care service plan or a group or individual
policy of vision-only or dental-only coverage, respectively, to be
included within the definition of a disputed health care service,
subject to the Independent Medical Review System.
   This bill additionally authorizes the Insurance Commissioner to
contract with the Department of Managed Health Care to administer the
Independent Medical Review System as it applies to disability
insurers.
   (5) This bill would make technical changes to various provisions
pertaining to the regulation of health care service plans and
disability insurers.
   (6) Existing law provides for the registration of telephone
medical advice services with the Telephone Medical Advice Services
Bureau of the Department of Consumer Affairs, and prohibits,
effective January 1, 2000, an in-state or out-of-state business
entity from providing those services to a patient at a California
address unless the person is registered.  These provisions do not
apply to healing arts professionals licensed under the Business and
Professions Code who provide telephone medical advice that is
incidental to their primary focus of their medical advice activities
in their professional practice.
   This bill instead would limit the application of these and related
provisions to a business entity that employs, or contracts or
subcontracts with, the full-time equivalent of 5 or more persons
functioning as health care professionals, as defined, whose primary
function is to provide telephone medical advice, as specified.  This
bill would revise various registration provisions and would authorize
the director of the department to exempt from fees certain telephone
advice services that serve charity or medically indigent patients,
as specified.  This bill would make other related changes.
   (7) Existing law requires health care service plans and certain
disability insurers to provide or authorize a 2nd opinion by an
appropriately qualified health professional if requested by an
enrollee or insured, and defines "appropriately qualified health care
professional" for these purposes to mean a primary care physician or
a specialist who is acting within his or her scope of practice and
who possesses a certain clinical background, as specified.  A willful
violation of the provisions governing health care service plans is a
crime.
   This bill would instead define "appropriately qualified health
care professional" for these purposes to mean a primary care
physician, specialist, or other licensed health care provider who
meets these requirements.  Because a willful violation of the bill's
requirements with respect to a health care service plan would be a
crime, this bill would impose a state-mandated local program by
changing the definition of a crime.
   (8) Chapter 525 of the Statutes of 1999, which created the
Department of Managed Care, which this bill would rename the
Department of Managed Health Care, amended various code sections
relative to the assumption of responsibility from the Department of
Corporations with regard to health care service plans.  However, that
chapter contained language deferring to other bills chaptered in
1999 in order to not chapter out those bills.
   This bill would enact the changes made by various code sections
contained in Chapter 525 of the Statutes of 1999 that did not become
law due to that deferral provision.
  The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 1618.5 of the Business and Professions Code is
amended to read:
   1618.5.  (a) The board shall provide to the Director of the
Department of Managed Health Care a copy of any accusation filed with
the Office of Administrative Hearings pursuant to Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, when the accusation is filed, for a violation
of this chapter relating to the quality of care of any dental
provider of a health care service plan, as defined in Section 1345 of
the Health and Safety Code.  There shall be no liability on the part
of, and no cause of action shall arise against, the State of
California, the Board of Dental Examiners, the Department of Managed
Health Care, the director of that department, or any officer, agent,
employee, consultant, or contractor of the state or the board or the
department for the release of any false or unauthorized information
pursuant to this section, unless the release is made with knowledge
and malice.
   (b) The board and its executive officer and staff shall maintain
the confidentiality of any nonpublic reports provided by the Director
of the Department of Managed Health Care pursuant to subdivision (i)
of Section 1380 of the Health and Safety Code.
  SEC. 2.  Section 4382 of the Business and Professions Code is
amended to read:
   4382.  The board may audit persons for compliance with the limits
established in paragraph (3) of subdivision (a) of Section 4380
except that in the case of a facility or pharmacy that predominately
serves members of a prepaid group practice health care service plan,
those audits may be undertaken solely by the Department of Managed
Health Care pursuant to its authority to audit those plans.
  SEC. 2.1.  Section 4999 of the Business and Professions Code is
amended to read:
   4999.  (a) On and after January 1, 2000, no business entity that
employs, or contracts or subcontracts, directly or indirectly, with,
the full-time equivalent of five or more persons functioning as
health care professionals, whose primary function is to provide
telephone medical advice, shall engage in the business of providing
telephone medical advice services to a patient at a California
address unless the business is registered with the Telephone Medical
Advice Services Bureau.  The department may adopt emergency
regulations further defining when a health care professional's
primary function is providing telephone medical advice.
   (b) Any business entity required to be registered under
subdivision (a) that submits proof of accreditation by the American
Accreditation Healthcare Commission, URAC, the National Committee for
Quality Assurance, the National Quality Health Council, or the Joint
Commission on Accreditation of Healthcare Organizations shall be
deemed provisionally registered by the bureau until the earlier of
the following:
   (1) December 31, 2000.
   (2) The granting or denial of an application for registration
pursuant to subdivision (a).
   (c) A medical group that operates in multiple locations in
California shall not be required to register pursuant to this section
if no more than five full-time equivalent persons at any one
location perform telephone medical advice services and those persons
limit the telephone medical advice services to patients being treated
at that location.
  SEC. 2.2.  Section 4999.4 of the Business and Professions Code is
amended to read:
   4999.4.  (a) Every registration issued a telephone medical advice
service shall expire 24 months after the initial date of issuance.
   (b) To renew an unexpired registration, the registrant shall,
before the time at which the license registration would otherwise
expire, apply for renewal on a form prescribed by the bureau, and pay
the renewal fee authorized by Section 4999.5.
   (c) A registration that is not renewed within three years
following its expiration shall not be renewed, restored, or
reinstated thereafter, and the delinquent registration shall be
canceled immediately upon expiration of the three-year period.  An
expired registration may be renewed at any time within three years
after its expiration upon filling of an application for renewal on a
form prescribed by the bureau and the payment of all fees authorized
by Section 4999.5.
  SEC. 2.3.  Section 4999.6 of the Business and Professions Code is
amended to read:
   4999.6.  The department may adopt, amend, or repeal any rules and
regulations that are reasonably necessary to carry out this chapter.
A telephone medical advice services provider who provides telephone
medical advice to a significant total number of charity or medically
indigent patients may, at the discretion of the director, be exempt
from the fee requirements imposed by this chapter.  However, those
providers shall comply with all other provisions of this chapter.
  SEC. 2.4.  Section 4999.7 of the Business and Professions Code is
amended to read:
   4999.7.  (a) Nothing in this section shall limit, preclude, or
otherwise interfere with the practices of other persons licensed or
otherwise authorized to practice, under any other provision of this
division, telephone medical advice services consistent with the laws
governing their respective scopes of practice, or licensed under the
Osteopathic Initiative Act or the Chiropractic Initiative Act and
operating consistent with the laws governing their respective scopes
of practice.
   (b) For the purposes of this chapter, "telephone medical advice"
means a telephonic communication between a patient and a health care
professional, wherein the health care professional's primary function
is to provide to the patient a telephonic response to the patient's
questions regarding his or her or a family member's medical care or
treatment.
   (c) For the purposes of this chapter, "health care professional"
is a staff person described in Section 4999.2 who provides medical
advice services and is appropriately licensed, certified, or
registered as a registered nurse pursuant to Chapter 6 (commencing
with Section 2700), a physician and surgeon pursuant to Chapter 5
(commencing with Section 2000), a dentist pursuant to Chapter 4
(commencing with Section 1600), a dental hygienist pursuant to
Section 1758 et seq., a psychologist pursuant to Chapter 6.6
(commencing with Section 2900), a marriage and family therapist
pursuant to Chapter 13 (commencing with Section 4980), an optometrist
pursuant to Chapter 7 (commencing with Section 3000), a chiropractor
pursuant to the Chiropractic Initiative Act, or an osteopath
pursuant to the Osteopathic Initiative Act, and who is operating
consistent with the laws governing his or her respective scopes of
practice in the state in which he or she provides telephone medical
advice services.
  SEC. 3.  Section 43.98 of the Civil Code is amended to read:
   43.98.  (a) There shall be no monetary liability on the part of,
and no cause of action shall arise against, any consultant on account
of any communication by that consultant to the Director of the
Department of Managed Health Care or any other officer, employee,
agent, contractor, or consultant of the Department of Managed Health
Care, when that communication is for the purpose of determining
whether health care services have been or are being arranged or
provided in accordance with the Knox-Keene Health Care Service Plan
Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2
of the Health and Safety Code) and any regulation adopted thereunder
and the consultant does all of the following:
   (1) Acts without malice.
   (2) Makes a reasonable effort to obtain the facts of the matter
communicated.
   (3) Acts with a reasonable belief that the communication is
warranted by the facts actually known to the consultant after a
reasonable effort to obtain the facts.
   (4) Acts pursuant to a contract entered into on or after January
1, 1998, between the Commissioner of Corporations and a state
licensing board or committee, including, but not limited to, the
Medical Board of California, or pursuant to a contract entered into
on or after January 1, 1998, with the Commissioner of Corporations
pursuant to Section 1397.6 of the Health and Safety Code.
   (5) Acts pursuant to a contract entered into on or after July 1,
2000, between the Director of the Department of Managed Health Care
and a state licensing board or committee, including, but not limited
to, the Medical Board of California, or pursuant to a contract
entered into on or after July 1, 1999, with the Director of the
Department of Managed Health Care pursuant to Section 1397.6 of the
Health and Safety Code.
   (b) The immunities afforded by this section shall not affect the
availability of any other privilege or immunity which may be afforded
under this part.  Nothing in this section shall be construed to
alter the laws regarding the confidentiality of medical records.
  SEC. 4.  Section 56.17 of the Civil Code is amended to read:
   56.17.  (a) This section shall apply to the disclosure of genetic
test results contained in an applicant or enrollee's medical records
by a health care service plan.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Health Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 5.  Section 3296 of the Civil Code is amended to read:
   3296.  (a) Whenever a judgment for punitive damages is entered
against an insurer or health care service plan licensed pursuant to
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code, the plaintiff in the action shall, within 10
days of entry of judgment, provide all of the following to the
Commissioner of the Department of Insurance or the Director of the
Department of Managed Health Care, whichever commissioner has
regulatory jurisdiction over the insurer or health care service plan:

   (1) A copy of the judgment.
   (2) A brief recitation of the facts of the case.
   (3) Copies of relevant pleadings, as determined by the plaintiff.

   (b) The willful failure to comply with this section may, at the
discretion of the trial court, result in the imposition of sanctions
against the plaintiff or his or her attorney.
   (c) This section shall apply to all judgments entered on or after
January 1, 1995.
   (d) "Insurer," for purposes of this section, means any person or
entity transacting any of the classes of insurance described in
Chapter 1 (commencing with Section 100) of Part 1 of Division 1 of
the Insurance Code.
  SEC. 6.  Section 10821 of the Corporations Code is amended to read:

   10821.  Notwithstanding any other provision of this division, as
to a health care service plan which is formed under or subject to
Part 2 (commencing with Section 5110) or Part 3 (commencing with
Section 7110) of this division, all references to the Attorney
General contained in Part 2 or Part 3 of this division shall, in the
case of health care service plans, be deemed to refer to the Director
of the Department of Managed Health Care.
  SEC. 7.  Section 13408.5 of the Corporations Code is amended to
read:
   13408.5.  No professional corporation may be formed so as to cause
any violation of law, or any applicable rules and regulations,
relating to fee splitting, kickbacks, or other similar practices by
physicians and surgeons or psychologists, including, but not limited
to, Section 650 or subdivision (e) of Section 2960 of the Business
and Professions Code.  A violation of any such provisions shall be
grounds for the suspension or revocation of the certificate of
registration of the professional corporation.  The Commissioner of
Corporations or the Director of the Department of Managed Health Care
may refer any suspected violation of such provisions to the
governmental agency regulating the profession in which the
corporation is, or proposes to be engaged.
  SEC. 8.  Section 1322 of the Government Code is amended to read:
   1322.  In addition to any other statutory provisions requiring
confirmation by the Senate of officers appointed by the Governor, the
appointments by the Governor of the following officers and the
appointments by him or her to the listed boards and commissions are
subject to confirmation by the Senate:
   (1) California Horse Racing Board.
   (2) Court Reporters Board of California.
   (3) Chief, Division of Occupational Safety and Health.
   (4) Chief, Division of Labor Standards Enforcement.
   (5) Commissioner of Corporations.
   (6) Contractors State License Board.
   (7) Director of Fish and Game.
   (8) State Director of Health Services.
   (9) Chief Deputy, State Department of Health Services.
   (10) Real Estate Commissioner.
   (11) State Athletic Commissioner.
   (12) State Board of Barbering and Cosmetology Examiners.
   (13) State Librarian.
   (14) Director of Social Services.
   (15) Chief Deputy, State Department of Social Services.
   (16) Director of Mental Health.
   (17) Chief Deputy, State Department of Mental Health.
   (18) Director of Developmental Services.
   (19) Chief Deputy, State Department of Developmental Services.
   (20) Director of Alcohol and Drug Abuse.
   (21) Director of Rehabilitation.
   (22) Chief Deputy, Department of Rehabilitation.
   (23) Director of the Office of Statewide Health Planning and
Development.
   (24) Deputy, Health and Welfare Agency.
   (25) Director, Department of Managed Health Care.
   (26) Patient Advocate, Department of Managed Health Care.
  SEC. 9.  Section 6253.4 of the Government Code is amended to read:

   6253.4.  (a) Every agency may adopt regulations stating the
procedures to be followed when making its records available in
accordance with this section.
   The following state and local bodies shall establish written
guidelines for accessibility of records.  A copy of these guidelines
shall be posted in a conspicuous public place at the offices of these
bodies, and a copy of the guidelines shall be available upon request
free of charge to any person requesting that body's records:
   Department of Motor Vehicles
   Department of Consumer Affairs
   Department of Transportation
   Department of Real Estate
   Department of Corrections
   Department of the Youth Authority
   Department of Justice
   Department of Insurance
   Department of Corporations
   Department of Managed Health Care
   Secretary of State
   State Air Resources Board
   Department of Water Resources
   Department of Parks and Recreation
   San Francisco Bay Conservation and Development Commission
   State Board of Equalization
   State Department of Health Services
   Employment Development Department
   State Department of Social Services
   State Department of Mental Health
   State Department of Developmental Services
   State Department of Alcohol and Drug Abuse
   Office of Statewide Health Planning and Development
   Public Employees' Retirement System
   Teachers' Retirement Board
   Department of Industrial Relations
   Department of General Services
   Department of Veterans Affairs
   Public Utilities Commission
   California Coastal Commission
   State Water Resources Control Board
   San Francisco Bay Area Rapid Transit District
   All regional water quality control boards
   Los Angeles County Air Pollution Control District
   Bay Area Air Pollution Control District
   Golden Gate Bridge, Highway and Transportation District
   Department of Toxic Substances Control
   Office of Environmental Health Hazard Assessment
   (b) Guidelines and regulations adopted pursuant to this section
shall be consistent with all other sections of this chapter and shall
reflect the intention of the Legislature to make the records
accessible to the public.  The guidelines and regulations adopted
pursuant to this section shall not operate to limit the hours public
records are open for inspection as prescribed in Section 6253.
  SEC. 10.  Section 6254.5 of the Government Code is amended to read:

   6254.5.  Notwithstanding any other provisions of the law, whenever
a state or local agency discloses a public record which is otherwise
exempt from this chapter, to any member of the public, this
disclosure shall constitute a waiver of the exemptions specified in
Sections 6254, 6254.7, or other similar provisions of law.  For
purposes of this section, "agency" includes a member, agent, officer,
or employee of the agency acting within the scope of his or her
membership, agency, office, or employment.
   This section, however, shall not apply to disclosures:
   (a) Made pursuant to the Information Practices Act (commencing
with Section 1798 of the Civil Code) or discovery proceedings.
   (b) Made through other legal proceedings or as otherwise required
by law.
   (c) Within the scope of disclosure of a statute which limits
disclosure of specified writings to certain purposes.
   (d) Not required by law, and prohibited by formal action of an
elected legislative body of the local agency which retains the
writings.
   (e) Made to any governmental agency which agrees to treat the
disclosed material as confidential.  Only persons authorized in
writing by the person in charge of the agency shall be permitted to
obtain the information.  Any information obtained by the agency shall
only be used for purposes which are consistent with existing law.
   (f) Of records relating to a financial institution or an affiliate
thereof, if the disclosures are made to the financial institution or
affiliate by a state agency responsible for the regulation or
supervision of the financial institution or affiliate.
   (g) Of records relating to any person that is subject to the
jurisdiction of the Department of Corporations, if the disclosures
are made to the person that is the subject of the records for the
purpose of corrective action by that person, or if a corporation, to
an officer, director, or other key personnel of the corporation for
the purpose of corrective action, or to any other person to the
extent necessary to obtain information from that person for the
purpose of an investigation by the Department of Corporations.
   (h) Made by the Commissioner of Financial Institutions under
Section 1909, 8009, or 18396 of the Financial Code.
   (i) Of records relating to any person that is subject to the
jurisdiction of the Department of Managed Health Care, if the
disclosures are made to the person that is the subject of the records
for the purpose of corrective action by that person, or if a
corporation, to an officer, director, or other key personnel of the
corporation for the purpose of corrective action, or to any other
person to the extent necessary to obtain information from that person
for the purpose of an investigation by the Department of Managed
Health Care.
  SEC. 11.  Section 11552 of the Government Code is amended to read:

   11552.  Effective January 1, 1988, an annual salary of eighty-five
thousand four hundred two dollars ($85,402) shall be paid to each of
the following:
   (a) Commissioner of Financial Institutions.
   (b) Commissioner of Corporations.
   (c) Insurance Commissioner.
   (d) Director of Transportation.
   (e) Real Estate Commissioner.
   (f) Director of Social Services.
   (g) Director of Water Resources.
   (h) Director of Corrections.
   (i) Director of General Services.
   (j) Director of Motor Vehicles.
   (k) Director of the Youth Authority.
   (l) Executive Officer of the Franchise Tax Board.
   (m) Director of Employment Development.
   (n) Director of Alcoholic Beverage Control.
   (o) Director of Housing and Community Development.
   (p) Director of Alcohol and Drug Abuse.
   (q) Director of the Office of Statewide Health Planning and
Development.
   (r) Director of the Department of Personnel Administration.
   (s) Chairperson and Member of the Board of Equalization.
   (t) Secretary of the Trade and Commerce Agency.
   (u) State Director of Health Services.
   (v) Director of Mental Health.
   (w) Director of Developmental Services.
   (x) State Public Defender.
   (y) Director of the California State Lottery.
   (z) Director of Fish and Game.
   (aa) Director of Parks and Recreation.
   (ab) Director of Rehabilitation.
   (ac) Director of Veterans Affairs.
   (ad) Director of Consumer Affairs.
   (ae) Director of Forestry and Fire Protection.
   (af) The Inspector General pursuant to Section 6125 of the Penal
Code.
   (ag) Director of the Department of Managed Health Care.
   The annual compensation provided by this section shall be
increased in any fiscal year in which a general salary increase is
provided for state employees.  The amount of the increase provided by
this section shall be comparable to, but shall not exceed, the
percentage of the general salary increases provided for state
employees during that fiscal year.
  SEC. 12.  Section 13975 of the Government Code is amended to read:

   13975.  The Business and Transportation Agency in state government
is hereby renamed the Business, Transportation and Housing Agency.
The agency consists of the Department of Alcoholic Beverage Control,
the Department of the California Highway Patrol, the Department of
Corporations, the Department of Housing and Community Development,
the Department of Motor Vehicles, the Department of Real Estate, the
Department of Transportation, the Department of Financial
Institutions, the Department of Managed Health Care, the Stephen P.
Teale Consolidated Data Center; and the California Housing Finance
Agency is also located within the Business, Transportation and
Housing Agency, as specified in Division 31 (commencing with Section
50000) of the Health and Safety Code.
  SEC. 13.  Section 13975.2 of the Government Code is amended to
read:
   13975.2.  (a) This section applies to every action brought in the
name of the people of the State of California by the Director of the
Department of Managed Health Care before, on, or after the effective
date of this section, when enforcing provisions of those laws
administered by the Director of the Department of Managed Health Care
which authorize the Director of Managed Health Care to seek a
permanent or preliminary injunction, restraining order, or writ of
mandate, or the appointment of a receiver, monitor, conservator, or
other designated fiduciary or officer of the court.  Upon a proper
showing, a permanent or preliminary injunction, restraining order, or
writ of mandate shall be granted and a receiver, monitor,
conservator, or other designated fiduciary or officer of the court
may be appointed for the defendant or the defendant's assets, or any
other ancillary relief may be granted as appropriate.  The court may
order that the expenses and fees of the receiver, monitor,
conservator, or other designated fiduciary or officer of the court,
be paid from the property held by the receiver, monitor, conservator,
or other court designated fiduciary or officer, but neither the
state, the Business, Transportation and Housing Agency, nor the
Department of Managed Health Care shall be liable for any of those
expenses and fees, unless expressly provided for by written contract.

   (b) The receiver, monitor, conservator, or other designated
fiduciary or officer of the court may do any of the following subject
to the direction of the court:
   (1) Sue for, collect, receive, and take into possession all the
real and personal property derived by any unlawful means, including
property with which that property or the proceeds thereof has been
commingled if that property or the proceeds thereof cannot be
identified in kind because of the
                commingling.
   (2) Take possession of all books, records, and documents relating
to any unlawfully obtained property and the proceeds thereof.  In
addition, they shall have the same right as a defendant to request,
obtain, inspect, copy, and obtain copies of books, records, and
documents maintained by third parties that relate to unlawfully
obtained property and the proceeds thereof.
   (3) Transfer, encumber, manage, control, and hold all property
subject to the receivership, including the proceeds thereof, in the
manner directed or ratified by the court.
   (4) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof to any person who committed,
aided or abetted, or participated in the commission of unlawful acts
or who had knowledge that the property had been unlawfully obtained.

   (5) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof made with the intent to
hinder or delay the recovery of that property or any interest in it
by the receiver or any person from whom the property was unlawfully
obtained.
   (6) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof that was made within one year
before the date of the entry of the receivership order if less than
a reasonably equivalent value was given in exchange for the transfer,
except that a bona fide transferee for value and without notice that
the property had been unlawfully obtained may retain the interest
transferred until the value given in exchange for the transfer is
returned to the transferee.
   (7) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof made within 90 days before
the date of the entry of the receivership order to a transferee from
whom the defendant unlawfully obtained some property if (A) the
receiver establishes that the avoidance of the transfer will promote
a fair pro rata distribution of restitution among all people from
whom defendants unlawfully obtained property and (B) the transferee
cannot establish that the specific property transferred was the same
property that had been unlawfully obtained from the transferee.
   (8) Exercise any power authorized by statute or ordered by the
court.
   (c) No person with actual or constructive notice of the
receivership shall interfere with the discharge of the receiver's
duties.
   (d) No person may file any action or enforce or create any lien,
or cause to be issued, served, or levied any summons, subpoena,
attachment, or writ of execution against the receiver or any property
subject to the receivership without first obtaining prior court
approval upon motion with notice to the receiver and the Director of
the Department of Managed Health Care.  Any legal procedure described
in this subdivision commenced without prior court approval is void
except as to a bona fide purchaser or encumbrancer for value and
without notice of the receivership.  No person without notice of the
receivership shall incur any liability for commencing or maintaining
any legal procedure described by this subdivision.
   (e) The court shall have jurisdiction of all questions arising in
the receivership proceedings and may make any orders and judgments as
may be required, including orders after noticed motion by the
receiver to avoid transfers as provided in paragraphs (4), (5), (6),
and (7) of subdivision (b).
   (f) This section is cumulative to all other provisions of law.
   (g) If any provision of this section or the application thereof to
any person or circumstances is held invalid, that invalidity shall
not affect other provisions or applications of this section that can
be given effect without the invalid provision or application, and to
this end the provisions of this section are severable.
   (h) The recordation of a copy of the receivership order imparts
constructive notice of the receivership in connection with any matter
involving real property located in the county in which the
receivership order is recorded.
  SEC. 14.  Section 21661 of the Government Code is amended to read:

   21661.  (a) The board shall contract with carriers offering
long-term care insurance plans and enter into health care service
plan contracts covering long-term care.
   The long-term care insurance plans and health care service plan
contracts covering long-term care shall be made available
periodically during open enrollment periods determined by the board.

   (b) The board shall award contracts to carriers who are qualified
to provide long-term care benefits, and may develop and administer
self-funded long-term care insurance plans.  The board may offer one
or more long-term care insurance plans or health care service plan
contracts covering long-term care and may offer service or
indemnity-type plans.
   (c) The long-term care insurance plans and health care service
plan contracts covering long-term care shall include home, community,
and institutional care and shall, to the extent determined by the
board, provide substantially equivalent coverage to that required
under Chapter 2.6 (commencing with Section 10230) of Part 2 of
Division 2 of the Insurance Code, if the carrier has been approved by
the Department of Managed Health Care pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code.
   (d) The classes of persons who shall be eligible to enroll are:
   (1) Active and retired members and annuitants of the Public
Employees' System, and their spouses, their parents, and their
spouses' parents.
   (2) Active and retired members and annuitants of any county or
district subject to the County Employees Retirement Law of 1937, and
their spouses, their parents, and their spouses' parents.
   (3) Active and retired members and annuitants of the State
Teachers' Retirement System, and their spouses, their parents, and
their spouses' parents.
   (4) Active employees and retirees and annuitants of any public
agency that is a contracting agency under this part or Part 5
(commencing with Section 22751), and their spouses, their parents,
and their spouses' parents.
   (5) Active and retired members and annuitants of the Judges'
Retirement System, and their spouses, their parents, and their
spouses' parents.
   (6) Active and retired members and annuitants of the Judges'
Retirement System II, and their spouses, their parents, and their
spouses' parents.
   (7) Active and retired members and annuitants of the Legislators'
Retirement System, and their spouses, their parents, and their
spouses' parents.
   (8) Members of the California Assembly and Senate and their
spouse, their parents and their spouse's parents.
   (9) Active and retired members and annuitants, and other classes
of employees of other public employee retirement systems or public
employers as the board determines may be eligible under the standards
the board may prescribe, and their spouses, their parents, and their
spouses' parents.
   (10) Active employees and retirees and annuitants of any agency
specified in paragraphs (1) through (9) who reside in the United
States, its territories and possessions, or in a country in which a
provider network can be established comparable in quality and
effectiveness to those established in the United States.
   (e) Any California public agency or retirement system may contract
with the board to extend the provisions of this article to its
active and retired employees and annuitants.
   (f) Irrespective of paragraphs (1) through (10) of subdivision
(d), no person shall be enrolled unless he or she meets the
eligibility and underwriting criteria established by the board.
   (g) Irrespective of paragraphs (1) through (10) of subdivision
(d), enrollment of active employees of the State of California shall
be subject to Section 19867.
   (h) The board shall establish eligibility criteria for enrollment,
establish appropriate underwriting criteria for potential enrollees,
define the scope of covered benefits, define the criteria to receive
benefits, and set any other standards as needed.
   (i) The full cost of enrollment in a long-term care insurance plan
or in health care service plan contracts covering long-term care
shall be paid by the enrollees.
   (j) The long-term care insurance plans and health care service
plan contracts covering long-term care shall not become part of, or
subject to, the retirement or health benefits programs administered
by the system.
   (k) For any self-funded long-term care plan developed by the
board, the premiums shall be deposited in the Public Employees'
Long-term Care Fund.
  SEC. 15.  Section 31696.1 of the Government Code is amended to
read:
   31696.1.  (a) The board of retirement may provide a long-term care
insurance program for retired members and their spouses, their
parents, and their spouses' parents.
   (b) Subject to Section 31696.5, the board may permit active
members and their spouses, their parents, and their spouses' parents
to enroll in the long-term care insurance program.
   (c) The long-term care insurance plan shall be made available
periodically during open enrollment periods determined by the board.

   (d) The board shall award contracts to carriers who are qualified
to provide long-term care benefits.
   (e) The long-term care insurance plan shall include home,
community, and institutional care and shall provide substantially
equivalent coverage to that required under Chapter 2.6 (commencing
with Section 10230) of Part 2 of Division 2 of the Insurance Code and
shall meet those requirements set forth in the Knox-Keene Health
Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code).  However, the
Department of Managed Health Care shall have no jurisdiction over the
insurance plan authorized by this article.
   (f) Notwithstanding subdivision (a), no person shall be enrolled
unless he or she meets the eligibility and underwriting criteria
approved by the board.
   (g) The board shall approve eligibility criteria for enrollment,
approve appropriate underwriting criteria for potential enrollees,
approve the scope of covered benefits, approve the criteria to
receive benefits, and approve any other standards as needed.
  SEC. 16.  Section 37615.1 of the Government Code is amended to
read:
   37615.1.  Each local municipal hospital shall have and may
exercise the following powers:
   (a) To purchase, receive, have, take, hold, lease, use, and enjoy
property of every kind and description within and without the limits
of the municipality, and to control, dispose of, convey, and encumber
the same and create a leasehold interest in the same for the benefit
of the hospital.
   (b) To establish one or more trusts for the benefit of the
municipal hospital, to administer any trusts declared or created for
the benefit of the municipal hospital, to designate one or more
trustees for trusts created by the municipality, to receive by gift,
devise, or bequest, and hold in trust or otherwise, property,
including corporate securities of all kinds, situated in this state
or elsewhere, and where not otherwise provided, dispose of the same
for the benefit of the municipal hospital.
   (c) To employ any officers and employees, including architects and
consultants, the board of trustees deems necessary to carry on
properly the business of the municipal hospital.
   (d) To do any and all things which an individual might do which
are necessary for, and to the advantage of, a hospital and a nurses'
training school, or a child-care facility for the benefit of
employees of the hospital or residents of the municipality.
   (e) To establish, maintain and operate, or provide assistance in
the operation of, one or more health facilities or health services,
including, but not limited to, outpatient programs, services and
facilities, retirement programs, services and facilities, chemical
dependency programs, services and facilities, or other health care
programs, services and facilities and activities at any location
within or without the municipality for the benefit of the hospital
and the people served by the municipal hospital.
   "Health facilities," as used in this subdivision, means those
facilities defined in either Section 15432 of this code or Section
1250 of the Health and Safety Code and specifically includes
freestanding chemical dependency recovery units.
   (f) To do any and all other acts and things necessary to carry out
this division.
   (g) To acquire, maintain, and operate ambulances or ambulance
services within and without the municipality.
   (h) To establish, maintain, and operate, or provide assistance in
the operation of, free clinics, diagnostic and testing centers,
health education programs, wellness and prevention programs,
rehabilitation, aftercare, and any other health care services
provider, groups, and organizations which are necessary for the
maintenance of good physical and mental health in the communities
served by the municipal hospital.
   (i) To establish and operate in cooperation with its medical staff
a coinsurance plan between the municipal hospital and the members of
its attending medical staff.
   (j) With the approval of the city council, to establish, maintain,
and carry on its activities through one or more corporations, joint
ventures, or partnerships for the benefit of the municipal hospital.

   (k) With the consent of the city council, to contract for bond
insurance, letters of credit, remarketing services, and other forms
of credit enhancement and liquidity support for its bonds, notes, and
other indebtedness and to enter into reimbursement agreements,
monitoring agreements, remarketing agreements, and similar ancillary
contracts in connection therewith.
   (l) To establish, maintain, operate, participate in, or manage
capitated health care plans, health maintenance organizations,
preferred provider organizations, and other managed health care
systems and programs properly licensed by the Department of Insurance
or the Department of Managed Health Care, at any location within or
without the municipality for the benefit of residents of communities
served by the hospital.  However, no such activity shall be deemed to
result in or constitute the giving or lending of the municipality's
credit, assets, surpluses, cash, or tangible goods to, or in aid of,
any person, association, or corporation in violation of Section 6 of
Article XVI of the California Constitution.
   Nothing in this section shall authorize activities which
corporations and other artificial legal entities are prohibited from
conducting by Section 2400 of the Business and Professions Code.
   Any agreement to provide health care coverage which is a health
care service plan, as defined in subdivision (f) of Section 1345 of
the Health and Safety Code, shall be subject to the provisions of
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code, unless exempted pursuant to Section 1343 or
1349.2 of the Health and Safety Code.
   A municipal hospital shall not provide health care coverage for
any employee of an employer operating within the service area of the
municipal hospital, unless the Legislature specifically authorizes,
or has authorized the coverage.
   This section shall not authorize any municipal hospital to
contribute its facilities to any joint venture that could result in
transfer of the facilities from city ownership.
   (m) To provide health care coverage to members of the hospital's
medical staff, employees of the medical staff members, and the
dependents of both groups, on a self-pay basis.
   (n) With the consent of the city council, to establish, maintain,
and carry on its activities through one or more corporations, joint
ventures, or partnerships for the benefit of the municipal hospital.

   (o) With the consent of the city council, to transfer, with or
without consideration, any part of its assets to one or more
nonprofit corporations to operate and maintain the assets for the
benefits of the area served by the hospital.  The initial members of
the board of directors of the nonprofit corporation or corporations
shall be approved by the city council and shall be residents of the
city.
   (p) Nothing in this section, including, but not limited to,
subdivision (e), shall be construed to permit a municipal hospital to
operate or be issued a single consolidated license to operate a
separate physical plant as a skilled nursing facility or an
intermediate care facility which is not located within the boundaries
of the municipality.
  SEC. 17.  Section 1317.2a of the Health and Safety Code is amended
to read:
   1317.2a.  (a) A hospital which has a legal obligation, whether
imposed by statute or by contract, to the extent of that contractual
obligation, to any third-party payor, including, but not limited to,
a health maintenance organization, health care service plan,
nonprofit hospital service plan, insurer, or preferred provider
organization, a county, or an employer to provide care for a patient
under the circumstances specified in Section 1317.2 shall receive
that patient to the extent required by the applicable statute or by
the terms of the contract, or, when the hospital is unable to accept
a patient for whom it has a legal obligation to provide care whose
transfer will not create a medical hazard as specified in Section
1317.2, it shall make appropriate arrangements for the patient's
care.
   (b) A county hospital shall accept a patient whose transfer will
not create a medical hazard as specified in Section 1317.2 and who is
determined by the county to be eligible to receive health care
services required under Part 5 (commencing with Section 17000) of
Division 9 of the Welfare and Institutions Code, unless the hospital
does not have appropriate bed capacity, medical personnel, or
equipment required to provide care to the patient in accordance with
accepted medical practice.  When a county hospital is unable to
accept a patient whose transfer will not create a medical hazard as
specified in Section 1317.2, it shall make appropriate arrangements
for the patient's care.  The obligation to make appropriate
arrangements as set forth in this subdivision does not mandate a
level of service or payment, modify the county's obligations under
Part 5 (commencing with Section 17000) of Division 9 of the Welfare
and Institutions Code, create a cause of action, or limit a county's
flexibility to manage county health systems within available
resources.  However, the county's flexibility shall not diminish a
county's responsibilities under Part 5 (commencing with Section
17000) of Division 9 of the Welfare and Institutions Code or the
requirements contained in Chapter 2.5 (commencing with Section 1440).

   (c) The receiving hospital shall provide personnel and equipment
reasonably required in the exercise of good medical practice for the
care of the transferred patient.
   (d) Any third-party payor, including, but not limited to, a health
maintenance organization, health care service plan, nonprofit
hospital service plan, insurer, or preferred provider organization,
or employer which has a statutory or contractual obligation to
provide or indemnify emergency medical services on behalf of a
patient shall be liable, to the extent of the contractual obligation
to the patient, for the reasonable charges of the transferring
hospital and the treating physicians for the emergency services
provided pursuant to this article, except that the patient shall be
responsible for uncovered services, or any deductible or copayment
obligation.  Notwithstanding this section, the liability of a
third-party payor which has contracted with health care providers for
the provision of these emergency services shall be set by the terms
of that contract.  Notwithstanding this section, the liability of a
third-party payor that is licensed by the Insurance Commissioner or
the Director of the Department of Managed Health Care and has a
contractual obligation to provide or indemnify emergency medical
services under a contract which covers a subscriber or an enrollee
shall be determined in accordance with the terms of that contract and
shall remain under the sole jurisdiction of that licensing agency.
   (e) A hospital which has a legal obligation to provide care for a
patient as specified by subdivision (a) of Section 1317.2a to the
extent of its legal obligation, imposed by statute or by contract to
the extent of that contractual obligation, which does not accept
transfers of, or make other appropriate arrangements for, medically
stable patients in violation of this article or regulations adopted
pursuant thereto shall be liable for the reasonable charges of the
transferring hospital and treating physicians for providing services
and care which should have been provided by the receiving hospital.
   (f) Subdivisions (d) and (e) do not apply to county obligations
under Section 17000 of the Welfare and Institutions Code.
   (g) Nothing in this section shall be interpreted to require a
hospital to make arrangements for the care of a patient for whom the
hospital does not have a legal obligation to provide care.
  SEC. 18.  Section 1317.6 of the Health and Safety Code is amended
to read:
   1317.6.  (a) Hospitals found by the state department to have
committed or to be responsible for a violation of this article or the
regulations adopted pursuant thereto shall be subject to a civil
penalty by the state department in an amount not to exceed
twenty-five thousand dollars ($25,000) for each hospital violation.
In determining the amount of the fine for a hospital violation, the
state department shall take into account all of the following:
   (1) Whether the violation was knowing or unintentional.
   (2) Whether the violation resulted or was reasonably likely to
result in a medical hazard to the patient.
   (3) The frequency or gravity of the violation.
   (4) Other civil fines which have been imposed as a result of the
violation under Section 1395 of Title 42 of the United States Code.
   (b) Notwithstanding this section, the director shall refer any
alleged violation by a hospital owned and operated by a health care
service plan involving a plan member or enrollee to the Department of
Managed Health Care unless the director determines the complaint is
without reasonable basis.  The Department of Managed Health Care
shall have sole authority and responsibility to enforce this article
with respect to violations involving hospitals owned and operated by
health care service plans in their treatment of plan members or
enrollees.
   (c) Physicians and surgeons found by the board to have committed,
or to be responsible for, a violation of this article or the
regulations adopted pursuant thereto shall be subject to any and all
penalties which the board may lawfully impose and may be subject to a
civil penalty by the board in an amount not to exceed five thousand
dollars ($5,000) for each violation.  A civil penalty imposed under
this subdivision shall not duplicate federal fines, and the board
shall credit any federal fine against a civil penalty imposed under
this subdivision.
   (d) The board may impose fines when it finds any of the following:

   (1) The violation was knowing or willful.
   (2) The violation was reasonably likely to result in a medical
hazard.
   (3) There are repeated violations.
   (e) It is the intent of the Legislature that the state department
has primary responsibility for regulating the conduct of hospital
emergency departments and that fines imposed under this section
should not be duplicated by additional fines imposed by the federal
government as a result of the conduct which constituted a violation
of this section.  To effectuate the Legislature's intent, the
Governor shall inform the Secretary of the federal Department of
Health and Human Services of the enactment of this section and
request the federal department to credit any penalty assessed under
this section against any subsequent civil monetary penalty assessed
pursuant to Section 1395dd of Title 42 of the United States Code for
the same violation.
   (f) There shall be a cumulative maximum limit of thirty thousand
dollars ($30,000) in fines assessed against hospitals under this
article and under Section 1395dd of Title 42 of the United States
Code for the same circumstances.  To effectuate this cumulative
maximum limit, the state department shall do both of the following:
   (1) As to state fines assessed prior to the final conclusion,
including judicial review, if available, of an action against a
hospital by the federal Department of Health and Human Services under
Section 1395dd of Title 42 of the United States Code (for the same
circumstances finally deemed to have been a violation of this article
or the regulations adopted hereunder, because of the state
department action authorized by this article), remit and return to
the hospital within 30 days after conclusion of the federal action,
that portion of the state fine necessary to assure that the
cumulative maximum limit is not exceeded.
   (2) Immediately credit against state fines assessed after the
final conclusion, including judicial review, if available, of an
action against a hospital by the federal Department of Health and
Human Services under Section 1395dd of Title 42 of the United States
Code, which results in a fine against a hospital (for the same
circumstances finally deemed to have been a violation of this article
or the regulations adopted hereunder, because of the state
department action authorized by this article), the amount of the
federal fine, necessary to assure the cumulative maximum limit is not
exceeded.
   (g) Any hospital found by the state department pursuant to
procedures established by the state department to have committed a
violation of this article or the regulations adopted hereunder may
have its emergency medical service permit revoked or suspended by the
state department.
   (h) Any administrative or medical personnel who knowingly and
intentionally violates any provision of this article, may be charged
by the local district attorney with a misdemeanor.
   (i) Notification of each violation found by the state department
of the provisions of this article or the regulations adopted
hereunder shall be sent by the state department to the Joint
Commission for the Accreditation of Hospitals, the state emergency
medical services authority, and local emergency medical services
agencies.
   (j) Any person who suffers personal harm and any medical facility
which suffers a financial loss as a result of a violation of this
article or the                                          regulations
adopted hereunder may recover, in a civil action against the
transferring or receiving hospital, damages, reasonable attorney's
fees, and other appropriate relief.  Transferring and receiving
hospitals from which inappropriate transfers of persons are made or
refused in violation of this article and the regulations adopted
hereunder shall be liable for the reasonable charges of the receiving
or transferring hospital for providing the services and care which
should have been provided.  Any person potentially harmed by a
violation of this article or the regulations adopted hereunder, or
the local district attorney or the Attorney General, may bring a
civil action against the responsible hospital or administrative or
medical personnel, to enjoin the violation, and if the injunction
issues, the court shall award reasonable attorney's fees.  The
provisions of this subdivision are in addition to other civil
remedies and do not limit the availability of the other remedies.
   (k) The civil remedies established by this section do not apply to
violations of any requirements established by any county or county
agency.
  SEC. 19.  Section 1341 of the Health and Safety Code is amended to
read:
   1341.  (a) There is in state government, in the Business,
Transportation and Housing Agency, a Department of Managed Health
Care that has charge of the execution of the laws of this state
relating to health care service plans and the health care service
plan business including, but not limited to, those laws directing the
department to ensure that health care service plans provide
enrollees with access to quality health care services and protect and
promote the interests of enrollees.
   (b) The chief officer of the Department of Managed Health Care is
the Director of the Department of Managed Health Care.  The director
shall be appointed by the Governor and shall hold office at the
pleasure of the Governor.  The director shall receive an annual
salary as fixed in the Government Code.  Within 15 days from the time
of the director's appointment, the director shall take and subscribe
to the constitutional oath of office and file it in the office of
the Secretary of State.
   (c) The director shall be responsible for the performance of all
duties, the exercise of all powers and jurisdiction, and the
assumption and discharge of all responsibilities vested by law in the
department.  The director has and may exercise all powers necessary
or convenient for the administration and enforcement of, among other
laws, the laws described in subdivision (a).
  SEC. 20.  Section 1341.1 of the Health and Safety Code is amended
to read:
   1341.1.  The director shall have his or her principal office in
the City of Sacramento, and may establish branch offices in the City
and County of San Francisco, in the City of Los Angeles, and in the
City of San Diego.  The director shall from time to time obtain the
necessary furniture, stationery, fuel, light, and other proper
conveniences for the transaction of the business of the Department of
Managed Health Care.
  SEC. 21.  Section 1341.2 of the Health and Safety Code is amended
to read:
   1341.2.  In accordance with the laws governing the state civil
service, the director shall employ and, with the approval of the
Department of Finance, fix the compensation of such personnel as the
director needs to discharge properly the duties imposed upon the
director by law, including, but not limited to, a chief deputy, a
public information officer, a chief enforcement counsel, and legal
counsel to act as the attorney for the director in actions or
proceedings brought by or against the director under or pursuant to
any provision of any law under the director's jurisdiction, or in
which the director joins or intervenes as to a matter within the
director's jurisdiction, as a friend of the court or otherwise, and
stenographic reporters to take and transcribe the testimony in any
formal hearing or investigation before the director or before a
person authorized by the director.  The personnel of the Department
of Managed Health Care shall perform such duties as the director
assigns to them.  Such employees as the director designates by rule
or order shall, within 15 days after their appointments, take and
subscribe to the constitutional oath of office and file it in the
office of the Secretary of State.
  SEC. 22.  Section 1341.3 of the Health and Safety Code is amended
to read:
   1341.3.  The director shall adopt a seal bearing the inscription:
"Director, Department of Managed Health Care, State of California."
The seal shall be affixed to or imprinted on all orders and
certificates issued by him or her and such other instruments as he or
she directs.  All courts shall take judicial notice of this seal.
  SEC. 23.  Section 1341.6 of the Health and Safety Code is amended
to read:
   1341.6.  (a) The Attorney General shall render to the director
opinions upon all questions of law, relating to the construction or
interpretation of any law under the director's jurisdiction or
arising in the administration thereof, that may be submitted to the
Attorney General by the director and upon the director's request
shall act as the attorney for the director in actions and proceedings
brought by or against the director under or pursuant to any
provision of any law under the director's jurisdiction.
   (b) Sections 11041, 11042, and 11043 of the Government Code do not
apply to the Director of the Department of Managed Health Care.
  SEC. 24.  Section 1341.7 of the Health and Safety Code is amended
to read:
   1341.7.  (a) Neither the director nor any of the director's
assistants, clerks, or deputies shall be interested as a director,
officer, shareholder, member other than a member of an organization
formed for religious purposes, partner, agent, or employee of any
person who, during the period of the official's or employee's
association with the Department of Managed Health Care, was licensed
or applied for a license as a health care service plan under this
chapter.
   (b) Nothing contained in subdivision (a) shall prohibit the
holdings or purchasing of any securities by the director, an
assistant, clerk, or deputy in accordance with rules which shall be
adopted for the purpose of protecting the public interest and
avoiding conflicts of interest.
   (c) Nothing in this section shall prohibit or preclude the
director or any of the director's assistants, clerks, or deputies or
any employee of the Department of Managed Health Care from obtaining
health care services as a subscriber or an enrollee from a plan
licensed under this chapter, subject to any rules that may be adopted
hereunder or pursuant to proper authority.
  SEC. 25.  Section 1342.3 of the Health and Safety Code is amended
to read:
   1342.3.  The director shall, in conjunction with the Advisory
Committee on Managed Health Care, undertake a study to consider the
feasibility and benefit of consolidating into the Department of
Managed Health Care the regulation of other health insurers providing
insurance through indemnity, preferred provider organization, and
exclusive provider organization products, as well as through other
managed care products regulated by the Department of Insurance.  The
results of the study along with the recommendations of the director
shall be incorporated into a report to the Governor and the
Legislature no later than December 31, 2001.
  SEC. 26.  Section 1342.5 of the Health and Safety Code is amended
to read:
   1342.5.  The director shall consult with the Insurance
Commissioner prior to adopting any regulations applicable to health
care service plans subject to this chapter and nonprofit hospital
service plans subject to Chapter 11A (commencing with Section 11491)
of Part 2 of Division 2 of the Insurance Code and other entities
governed by the Insurance Code for the specific purpose of ensuring,
to the extent practical, that there is consistency of regulations
applicable to these plans and entities by the Insurance Commissioner
and the Director of the Department of Managed Health Care.
  SEC. 27.  Section 1343 of the Health and Safety Code is amended to
read:
   1343.  (a) This chapter shall apply to health care service plans
and specialized health care service plan contracts as defined in
subdivisions (f) and (o) of Section 1345.
   (b) The director may by the adoption of rules or the issuance of
orders deemed necessary and appropriate, either unconditionally or
upon specified terms and conditions or for specified periods, exempt
from this chapter any class of persons or plan contracts if the
director finds the action to be in the public interest and not
detrimental to the protection of subscribers, enrollees, or persons
regulated under this chapter, and that the regulation of the persons
or plan contracts is not essential to the purposes of this chapter.
   (c) The director, upon request of the Director of Health Services,
shall exempt from this chapter any county-operated pilot program
contracting with the State Department of Health Services pursuant to
Article 7 (commencing with Section 14490) of Chapter 8 of Part 3 of
Division 9 of the Welfare and Institutions Code.  The director may
exempt non-county-operated pilot programs upon request of the State
Director of Health Services.  Those exemptions may be subject to
conditions the Director of Health Services deems appropriate.
   (d) Upon the request of the Director of Mental Health, the
director may exempt from this chapter any mental health plan
contractor or any capitated rate contract under Part 2.5 (commencing
with Section 5775) of Division 5 of the Welfare and Institutions
Code.  Those exemptions may be subject to conditions the Director of
Mental Health deems appropriate.
   (e) This chapter shall not apply to:
   (1) A person organized and operating pursuant to a certificate
issued by the Insurance Commissioner unless the entity is directly
providing the health care service through those entity-owned or
contracting health facilities and providers, in which case this
chapter shall apply to the insurer's plan and to the insurer.
   (2) A plan directly operated by a bona fide public or private
institution of higher learning which directly provides health care
services only to its students, faculty, staff, administration, and
their respective dependents.
   (3) A nonprofit corporation formed under Chapter 11a (commencing
with Section 11491) of Part 2 of Division 2 of the Insurance Code.
   (4) A person who does all of the following:
   (A) Promises to provide care for life or for more than one year in
return for a transfer of consideration from, or on behalf of, a
person 60 years of age or older.
   (B) Has obtained a written license pursuant to Chapter 2
(commencing with Section 1250) or Chapter 3.2 (commencing with
Section 1569).
   (C) Has obtained a certificate of authority from the State
Department of Social Services.
   (5) The Major Risk Medical Insurance Board when engaging in
activities under Chapter 8 (commencing with Section 10700) of Part 2
of Division 2 of the Insurance Code, Part 6.3 (commencing with
Section 12695) of Division 2 of the Insurance Code, and Part 6.5
(commencing with Section 12700) of Division 2 of the Insurance Code.

   (6) The California Small Group Reinsurance Fund.
  SEC. 28.  Section 1346.5 of the Health and Safety Code is amended
to read:
   1346.5.  If the director determines that an entity purporting to
be a health care service plan exempt from the provisions of Section
740 of the Insurance Code is not a health care service plan, the
director shall inform the Department of Insurance of that finding.
However, if the director determines that an entity is a health care
service plan, the director shall prepare and maintain for public
inspection a list of those persons or entities described in
subdivision (a) of Section 740 of the Insurance Code, which are not
subject to the jurisdiction of another agency of this or another
state or the federal government and which the director knows to be
operating in the state.  There shall be no liability of any kind on
the part of the state, the director, and employees of the Department
of Managed Health Care for the accuracy of the list or for any
comments made with respect to it.  Additionally, any solicitor or
solicitor firm who advertises or solicits health care service plan
coverage in this state described in subdivision (a) of Section 740 of
the Insurance Code, which is provided by any person or entity
described in subdivision (c) of that section, and where such coverage
does not meet all pertinent requirements specified in the Insurance
Code, and which is not provided or completely underwritten, insured
or otherwise fully covered by a health care service plan, shall
advise and disclose to any purchaser, prospective purchaser, covered
person or entity, all financial and operational information relative
to the content and scope of the plan and, specifically, as to the
lack of plan coverage.
  SEC. 29.  Section 1347 of the Health and Safety Code is amended to
read:
   1347.  (a) (1) There is established in the Department of Managed
Health Care the Advisory Committee on Managed Health Care consisting
of 22 members, as follows:
   (A) The director.
   (B)  Eleven members appointed by the Governor, to be appointed as
follows:
   (i) A physician and surgeon with five years' experience in
providing services to enrollees of a full service health care service
plan.
   (ii) An executive officer or medical director of a full service
health care service plan.

   (iii) A person with expertise and five years' experience in an
administrative capacity of a health care service plan.
   (iv) An executive officer with five years' experience with a
contracting medical group.
   (v) A medical director with a contracting medical group.
   (vi) A member of the department's Financial Solvency Standards
Board.
   (vii) A physician-executive from an academic medical center.
   (viii) A member of the department's clinical advisory panel.
   (ix) A medical director or senior officer with a dental service
plan.
   (x) A medical director or senior officer with a vision service
plan.
   (xi) A medical director or senior officer with a mental health
service plan.
   (C) (i) Ten public members, four of whom shall be appointed by the
Governor and three each by the Speaker of the Assembly and the
Senate Committee on Rules who have a broad understanding of health
and managed care issues and who have no financial interest in the
delivery of health care services or in plans except that public
members may be enrollees in a health care service plan or specialized
health care service plan.
   (ii) Of the public members appointed by the Governor, at least two
of these members shall have significant academic backgrounds in the
area.
   (iii) Of the members appointed by the Speaker of the Assembly and
the Senate Committee on Rules at least one public member appointed by
each appointing power shall represent a health care consumer
advocacy organization, with the Speaker's appointee representing an
organization that devotes at least 50 percent of its time to
resolving consumer complaints.  The Speaker of the Assembly and the
Senate Committee on Rules shall also each appoint one public member
with significant background experience in the area of health care.
   (D) With respect to members appointed by the Governor, if members
with the qualifications specified in this subdivision are not
available for service, other factors such as relevant health care
experience and education shall be substituted at the discretion of
the Governor.
   (2) Except as otherwise specified in this paragraph, all
appointments to the committee shall be for a period of three years.
The initial appointments shall commence January 1, 2000.  Of the
initial appointments made by the Governor, four shall serve for a
term of one year and five shall serve for a term of two years, as
designated by the Governor.  Of the initial appointments made by the
Speaker of the Assembly and the Senate Committee on Rules, one member
appointed by each appointing power shall serve for a term of one
year, and one shall serve for a term of two years, as designated by
the appointing power.
   (b) The committee shall meet at least quarterly and at the call of
the chairperson.  The director or the director's designee shall be
chairperson of the committee.  The committee may establish its own
rules and procedures.  All members shall serve without compensation,
but the consumer representatives and public members shall be
reimbursed from department funds for expenses actually and
necessarily incurred by them in the performance of their duties.
   (c) The purpose of the committee is to assist and advise the
director in the implementation of the director's duties under this
chapter and to make recommendations that it deems beneficial and
appropriate as to how the department may best serve the people of the
state.  The committee shall produce an Internet-accessible annual
public report that will, at a minimum, contain recommendations made
to the director.  At a minimum, the report shall include the
following:
   (1) Recommendations to the director on producing a report card to
the public on the comparative performance of the managed care
organizations overseen by the department, including health care
service plans and subcontracting providers, building on the work of
the private sector and other government entities and including
complaint information received by the state.
   (2) (A) The committee's top five recommendations for improving the
health care delivery system and quality of care taking into
consideration information received from the public.
   (B) To assist the committee in formulating its recommendations,
the views and suggestions of the public should be solicited.  The
committee shall accompany the director at least twice each year for
public hearings (with at least one in northern California and at
least one in southern California).
   (C) This report shall be delivered to the director, the Governor,
and to the appropriate policy committees of the Legislature.
   (d) The director shall consult with the advisory committee on
regulations and the recommendations of the committee shall be made a
part of the record with regard to such regulations.  The committee
shall be given at least 40 days to review and comment on regulations
prior to setting a notice of hearing for proposed regulations.
Nothing in this subdivision prohibits the director from promulgating
emergency regulations pursuant to the provisions of the
Administrative Procedure Act.  The director shall discuss budget
changes relating to the administration of this chapter with the
committee, and the committee may make recommendations to the director
regarding the proposed budget changes.
  SEC. 30.  Section 1357.16 of the Health and Safety Code is amended
to read:
   1357.16.  (a) Health care service plans may enter into contractual
agreements with qualified associations, as defined in subdivision
(b), under which these qualified associations may assume
responsibility for performing specific administrative services, as
defined in this section, for qualified association members.  Health
care service plans that enter into agreements with qualified
associations for assumption of administrative services shall
establish uniform definitions for the administrative services that
may be provided by a qualified association or its third-party
administrator.  The health care service plan shall permit all
qualified associations to assume one or more of these functions when
the health care service plan determines the qualified association
demonstrates the administrative capacity to assume these functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the health care
service plan or through a third-party administrator on a commission
basis or an agent or solicitor work force on a commission basis.
   Each health care service plan that enters into an agreement with
any qualified association for the provision of administrative
services shall offer all qualified associations with which it
contracts the same premium discounts for performing those services
the health care service plan has permitted the qualified association
or its third-party administrator to assume.  The health care service
plan shall apply these uniform discounts to the health care service
plan's risk adjusted employee risk rates after the health plan has
determined the qualified association's risk adjusted employee risk
rates pursuant to Section 1357.12.  The health care service plan
shall report to the Department of Managed Health Care its schedule of
discount for each administrative service.
   In no instance may a health care service plan provide discounts to
qualified associations that are in any way intended to, or
materially result in, a reduction in premium charges to the qualified
association due to the health status of the membership of the
qualified association.  In addition to any other remedies available
to the director to enforce this chapter, the director may declare a
contract between a health care service plan and a qualified
association for administrative services pursuant to this section null
and void if the director determines any discounts provided to the
qualified association are intended to, or materially result in, a
reduction in premium charges to the qualified association due to the
health status of the membership of the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership directly or indirectly on the
health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer only to association members any plan
contract.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by association
sponsored plans immediately prior to enactment of Chapter 1128 of the
Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with Section 1357.52.
   (d) The department shall monitor compliance with this section and
report the impact of any noncompliance to the Assembly Insurance
Committee and the Senate Insurance Committee on January 1, 2002.
   (e) This section shall remain in effect only until January 1,
2003, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2003, deletes or extends
that date.
  SEC. 31.  Section 1363 of the Health and Safety Code is amended to
read:
   1363.  (a) The director shall require the use by each plan of
disclosure forms or materials containing information regarding the
benefits, services, and terms of the plan contract as the director
may require, so as to afford the public, subscribers, and enrollees
with a full and fair disclosure of the provisions of the plan in
readily understood language and in a clearly organized manner.  The
director may require that the materials be presented in a reasonably
uniform manner so as to facilitate comparisons between plan contracts
of the same or other types of plans.  Nothing contained in this
chapter shall preclude the director from permitting the disclosure
form to be included with the evidence of coverage or plan contract.
   The disclosure form shall provide for at least the following
information, in concise and specific terms, relative to the plan,
together with additional information as may be required by the
director, in connection with the plan or plan contract:
   (1) The principal benefits and coverage of the plan, including
coverage for acute care and subacute care.
   (2) The exceptions, reductions, and limitations that apply to the
plan.
   (3) The full premium cost of the plan.
   (4) Any copayment, coinsurance, or deductible requirements that
may be incurred by the member or the member's family in obtaining
coverage under the plan.
   (5) The terms under which the plan may be renewed by the plan
member, including any reservation by the plan of any right to change
premiums.
   (6) A statement that the disclosure form is a summary only, and
that the plan contract itself should be consulted to determine
governing contractual provisions.  The first page of the disclosure
form shall contain a notice that conforms with all of the following
conditions:
   (A) (i) States that the evidence of coverage discloses the terms
and conditions of coverage.
   (ii) States, with respect to individual plan contracts, small
group plan contracts, and any other group plan contracts for which
health care services are not negotiated, that the applicant has a
right to view the evidence of coverage prior to enrollment, and, if
the evidence of coverage is not combined with the disclosure form,
the notice shall specify where the evidence of coverage can be
obtained prior to enrollment.
   (B) Includes a statement that the disclosure and the evidence of
coverage should be read completely and carefully and that individuals
with special health care needs should read carefully those sections
that apply to them.
                                                            (C)
Includes the plan's telephone number or numbers that may be used by
an applicant to receive additional information about the benefits of
the plan or a statement where the telephone number or numbers are
located in the disclosure form.
   (D) For individual contracts, and small group plan contracts as
defined in Article 3.1 (commencing with Section 1357), the disclosure
form shall state where the health plan benefits and coverage matrix
is located.
   (E) Is printed in type no smaller than that used for the remainder
of the disclosure form and is displayed prominently on the page.
   (7) A statement as to when benefits shall cease in the event of
nonpayment of the prepaid or periodic charge and the effect of
nonpayment upon an enrollee who is hospitalized or undergoing
treatment for an ongoing condition.
   (8) To the extent that the plan permits a free choice of provider
to its subscribers and enrollees, the statement shall disclose the
nature and extent of choice permitted and the financial liability
that is, or may be, incurred by the subscriber, enrollee, or a third
party by reason of the exercise of that choice.
   (9) A summary of the provisions required by subdivision (g) of
Section 1373, if applicable.
   (10) If the plan utilizes arbitration to settle disputes, a
statement of that fact.
   (11) A summary of, and a notice of the availability of, the
process the plan uses to authorize, modify, or deny health care
services under the benefits provided by the plan, pursuant to
Sections 1363.5 and 1367.01.
   (12) A description of any limitations on the patient's choice of
primary care or specialty care physician based on service area and
limitations on the patient's choice of acute care hospital care,
subacute or transitional inpatient care, or skilled nursing facility.

   (13) General authorization requirements for referral by a primary
care physician to a specialty care physician.
   (14) Conditions and procedures for disenrollment.
   (15) A description as to how an enrollee may request continuity of
care as required by Section 1373.96 and request a second opinion
pursuant to Section 1383.15.
   (16) Information concerning the right of an enrollee to request an
independent review in accordance with Article 5.55 (commencing with
Section 1374.30).
   (17) A notice as required by Section 1364.5.
   (b) (1) As of July 1, 1999, the director shall require each plan
offering a contract to an individual or small group to provide with
the disclosure form for individual and small group plan contracts a
uniform health plan benefits and coverage matrix containing the plan'
s major provisions in order to facilitate comparisons between plan
contracts.  The uniform matrix shall include the following category
descriptions together with the corresponding copayments and
limitations in the following sequence:
   (A) Deductibles.
   (B) Lifetime maximums.
   (C) Professional services.
   (D) Outpatient services.
   (E) Hospitalization services.
   (F) Emergency health coverage.
   (G) Ambulance services.
   (H) Prescription drug coverage.
   (I) Durable medical equipment.
   (J) Mental health services.
   (K) Chemical dependency services.
   (L) Home health services.
   (M) Other.
   (2) The following statement shall be placed at the top of the
matrix in all capital letters in at least 10-point boldface type:
THIS MATRIX IS INTENDED TO BE USED TO HELP YOU COMPARE COVERAGE
BENEFITS AND IS A SUMMARY ONLY.  THE EVIDENCE OF COVERAGE AND PLAN
CONTRACT SHOULD BE CONSULTED FOR A DETAILED DESCRIPTION OF COVERAGE
BENEFITS AND LIMITATIONS.

   (c) Nothing in this section shall prevent a plan from using
appropriate footnotes or disclaimers to reasonably and fairly
describe coverage arrangements in order to clarify any part of the
matrix that may be unclear.
   (d) All plans, solicitors, and representatives of a plan shall,
when presenting any plan contract for examination or sale to an
individual prospective plan member, provide the individual with a
properly completed disclosure form, as prescribed by the director
pursuant to this section for each plan so examined or sold.
   (e) In the case of group contracts, the completed disclosure form
and evidence of coverage shall be presented to the contractholder
upon delivery of the completed health care service plan agreement.
   (f) Group contractholders shall disseminate copies of the
completed disclosure form to all persons eligible to be a subscriber
under the group contract at the time those persons are offered the
plan.  If the individual group members are offered a choice of plans,
separate disclosure forms shall be supplied for each plan available.
  Each group contractholder shall also disseminate or cause to be
disseminated copies of the evidence of coverage to all applicants,
upon request, prior to enrollment and to all subscribers enrolled
under the group contract.
   (g) In the case of conflicts between the group contract and the
evidence of coverage, the provisions of the evidence of coverage
shall be binding upon the plan notwithstanding any provisions in the
group contract that may be less favorable to subscribers or
enrollees.
   (h) In addition to the other disclosures required by this section,
every health care service plan and any agent or employee of the plan
shall, when presenting a plan for examination or sale to any
individual purchaser or the representative of a group consisting of
25 or fewer individuals, disclose in writing the ratio of premium
costs to health services paid for plan contracts with individuals and
with groups of the same or similar size for the plan's preceding
fiscal year.  A plan may report that information by geographic area,
provided the plan identifies the geographic area and reports
information applicable to that geographic area.
   (i) Subdivision (b) shall not apply to any coverage provided by a
plan for the Medi-Cal program or the Medicare program pursuant to
Title XVIII and Title XIX of the Social Security Act.
  SEC. 32.  Section 1367.25 of the Health and Safety Code is amended
to read:
   1367.25.  (a) Every group health care service plan contract,
except for a specialized health care service plan contract, that is
issued, amended, renewed, or delivered on or after January 1, 2000,
and every individual health care service plan contract that is
amended, renewed, or delivered on or after January 1, 2000, except
for a specialized health care service plan contract, shall provide
coverage for the following, under general terms and conditions
applicable to all benefits:
   (1) A health care service plan contract that provides coverage for
outpatient prescription drug benefits shall include coverage for a
variety of federal Food and Drug Administration approved prescription
contraceptive methods designated by the plan.  In the event the
patient's participating provider, acting within his or her scope of
practice, determines that none of the methods designated by the plan
is medically appropriate for the patient's medical or personal
history, the plan shall also provide coverage for another federal
Food and Drug Administration approved, medically appropriate
prescription contraceptive method prescribed by the patient's
provider.
   (2) Outpatient prescription benefits for an enrollee shall be the
same for an enrollee's covered spouse and covered nonspouse
dependents.
   (b) Notwithstanding any other provision of this section, a
religious employer may request a health care service plan contract
without coverage for federal Food and Drug Administration approved
contraceptive methods that are contrary to the religious employer's
religious tenets.  If so requested, a health care service plan
contract shall be provided without coverage for contraceptive
methods.
   (1) For purposes of this section, a "religious employer" is an
entity for which each of the following is true:
   (A) The inculcation of religious values is the purpose of the
entity.
   (B) The entity primarily employs persons who share the religious
tenets of the entity.
   (C) The entity serves primarily persons who share the religious
tenets of the entity.
   (D) The entity is a nonprofit organization as described in Section
6033(a)(2)(A)i or iii, of the Internal Revenue Code of 1986, as
amended.
   (2) Every religious employer that invokes the exemption provided
under this section shall provide written notice to prospective
enrollees prior to enrollment with the plan, listing the
contraceptive health care services the employer refuses to cover for
religious reasons.
   (c) Nothing in this section shall be construed to exclude coverage
for prescription contraceptive supplies ordered by a health care
provider with prescriptive authority for reasons other than
contraceptive purposes, such as decreasing the risk of ovarian cancer
or eliminating symptoms of menopause, or for prescription
contraception that is necessary to preserve the life or health of an
enrollee.
   (d) Nothing in this section shall be construed to deny or restrict
in any way any existing right or benefit provided under law or by
contract.
   (e) Nothing in this section shall be construed to require an
individual or group health care service plan to cover experimental or
investigational treatments.
  SEC. 33.  Section 1367.695 of the Health and Safety Code is amended
to read:
   1367.695.  (a) The Legislature finds and declares that the unique,
private, and personal relationship between women patients and their
obstetricians and gynecologists warrants direct access to obstetrical
and gynecological physician services.
   (b) Commencing January 1, 1999, every health care service plan
contract issued, amended, renewed, or delivered in this state, except
a specialized health care service plan, shall allow an enrollee the
option to seek obstetrical and gynecological physician services
directly from a participating obstetrician and gynecologist or
directly from a participating family practice physician and surgeon
designated by the plan as providing obstetrical and gynecological
services.
   (c) In implementing this section, a health care service plan may
establish reasonable provisions governing utilization protocols and
the use of obstetricians and gynecologists, or family practice
physicians and surgeons, as provided for in subdivision (b),
participating in the plan network, medical group, or independent
practice association, provided that these provisions shall be
consistent with the intent of this section and shall be those
customarily applied to other physicians and surgeons, such as primary
care physicians and surgeons, to whom the enrollee has direct
access, and shall not be more restrictive for the provision of
obstetrical and gynecological physician services.  An enrollee shall
not be required to obtain prior approval from another physician,
another provider, or the health care service plan prior to obtaining
direct access to obstetrical and gynecological physician services,
but the plan may establish reasonable requirements for the
participating obstetrician and gynecologist or family practice
physician and surgeon, as provided for in subdivision (b), to
communicate with the enrollee's primary care physician and surgeon
regarding the enrollee's condition, treatment, and any need for
followup care.
   (d) This section shall not be construed to diminish the provisions
of Section 1367.69.
   (e) The Department of Managed Health Care shall report to the
Legislature, on or before January 1, 2000, on the implementation of
this section.
  SEC. 34.  Section 1368.02 of the Health and Safety Code is amended
to read:
   1368.02.  (a) The director shall establish and maintain a
toll-free telephone number for the purpose of receiving complaints
regarding health care service plans regulated by the director.
   (b) Every health care service plan shall publish the department's
toll-free telephone number, the California Relay Service's toll-free
telephone numbers for the hearing and speech impaired, the plan's
telephone number, and the department's Internet address, on every
plan contract, on every evidence of coverage, on copies of plan
grievance procedures, on plan complaint forms, and on all written
notices to enrollees required under the grievance process of the
plan, including any written communications to an enrollee that offer
the enrollee the opportunity to participate in the grievance process
of the plan and on all written responses to grievances.  The
department's telephone number, the California Relay Service's
telephone numbers, the plan's telephone number, and the department's
Internet address shall be displayed by the plan in each of these
documents in 12-point boldface type in the following regular type
statement:

   "The California Department of Managed Health Care is responsible
for regulating health care service plans.  The department has a
toll-free telephone number (insert telephone number) to receive
complaints regarding health plans.  The hearing and speech impaired
may use the California Relay Service's toll-free telephone numbers
(1-800-735-2929 (TTY) or 1-888-877-5378 (TTY)) to contact the
department.  The department's Internet website (insert website
address) has complaint forms and instructions online.  If you have a
grievance against your health plan, you should first telephone your
plan at (plan's telephone number) and use the plan's grievance
process before contacting the department.  If you need help with a
grievance involving an emergency, a grievance that has not been
satisfactorily resolved by your plan, or a grievance that has
remained unresolved for more than 30 days, you may call the
department for assistance.  The plan's grievance process and the
department's complaint review process are in addition to any other
dispute resolution procedures that may be available to you, and your
failure to use these processes does not preclude your use of any
other remedy provided by law."

   (c) (1) There is within the department an Office of Patient
Advocate, which shall be known and may be cited as the
Gallegos-Rosenthal Patient Advocate Program, to represent the
interests of enrollees served by health care service plans regulated
by the department.  The goal of the office shall be to help enrollees
secure health care services to which they are entitled under the
laws administered by the department.
   (2) The office shall be headed by a patient advocate recommended
to the Governor by the Secretary of the Business, Transportation and
Housing Agency.  The patient advocate shall be appointed by and serve
at the pleasure of the Governor.
   (3) The duties of the office shall be determined by the secretary,
in consultation with the director, and shall include, but not be
limited to:
   (A) Developing educational and informational guides for consumers
describing enrollee rights and responsibilities, and informing
enrollees on effective ways to exercise their rights to secure health
care services.  The guides shall be easy to read and understand,
available in English and other languages, and shall be made available
to the public by the department, including access on the department'
s Internet website and through public outreach and educational
programs.
   (B) Compiling an annual publication, to be made available on the
department's Internet website, of a quality of care report card
including but not limited to health care service plans.
   (C) Rendering advice and assistance to enrollees regarding
procedures, rights, and responsibilities related to the use of health
care service plan grievance systems, the department's system for
reviewing unresolved grievances, and the independent review process.

   (D) Making referrals within the department regarding studies,
investigations, audits, or enforcement that may be appropriate to
protect the interests of enrollees.
   (E) Coordinating and working with other government and
nongovernment patient assistance programs and health care
ombudsprograms.
   (4) The director, in consultation with the patient advocate, shall
provide for the assignment of personnel to the office.  The
department may employ or contract with experts when necessary to
carry out functions of the office.  The annual budget for the office
shall be separately identified in the annual budget request of the
department.
   (5) The office shall have access to department records including,
but not limited to, information related to health care service plan
audits, surveys, and enrollee grievances.  The department shall
assist the office in compelling the production and disclosure of any
information the office deems necessary to perform its duties, from
entities regulated by the department, if the information is
determined by the department's legal counsel to be subject, under
existing law, to production or disclosure to the department.
   (6) The patient advocate shall annually issue a public report on
the activities of the office, and shall appear before the appropriate
policy and fiscal committees of the Senate and Assembly, if
requested, to report and make recommendations on the activities of
the office.
  SEC. 35.  Section 1368.2 of the Health and Safety Code is amended
to read:
   1368.2.  (a) On and after January 1, 2002, every group health care
service plan contract, except a specialized health care service plan
contract, which is issued, amended, or renewed, shall include a
provision for hospice care.
   (b) The hospice care shall at a minimum be equivalent to hospice
care provided by the federal Medicare program pursuant to Title XVIII
of the Social Security Act.
   (c) The following are applicable to this section and to paragraph
(7) of subdivision (b) of Section 1345:
   (1) The definitions in Section 1746.
   (2) The "federal regulations" which means the regulations adopted
for hospice care under Title XVIII of the Social Security Act in
Title 42 of the Code of Federal Regulations, Chapter IV, Part 418,
except Subparts A, B, G, and H, and any amendments or successor
provisions thereto.
   (d) The director no later than January 1, 2001, shall adopt
regulations to implement this section. The regulations shall meet all
of the following requirements:
   (1) Be consistent with all material elements of the federal
regulations that are not by their terms applicable only to eligible
Medicare beneficiaries. If there is a conflict between a federal
regulation and any state regulation, other than those adopted
pursuant to this section, the director shall adopt the regulation
that is most favorable for plan subscribers, members or enrollees to
receive hospice care.
   (2) Be consistent with any other applicable federal or state laws.

   (3) Be consistent with the definitions of Section 1746.
   (e) This section is not applicable to the subscribers, members, or
enrollees of a health care service plan who elect to receive hospice
care under the Medicare program.
   (f) The director, commencing on January 15, 2002, and on each
January 15th thereafter, shall report to the Advisory Committee on
Managed Health Care any changes in the federal regulations that
differ materially from the regulations then in effect for this
section.  The director shall include with the report written text for
proposed changes to the regulations then in effect for this section
needed to meet the requirements of subdivision (d).
  SEC. 36.  Section 1371.4 of the Health and Safety Code is amended
to read:
   1371.4.  (a) A health care service plan, or its contracting
medical providers, shall provide 24-hour access for enrollees and
providers to obtain timely authorization for medically necessary
care, for circumstances where the enrollee has received emergency
services and care is stabilized, but the treating provider believes
that the enrollee may not be discharged safely.  A physician and
surgeon shall be available for consultation and for resolving
disputed requests for authorizations.  A health care service plan
that does not require prior authorization as a prerequisite for
payment for necessary medical care following stabilization of an
emergency medical condition or active labor need not satisfy the
requirements of this subdivision.
   (b) A health care service plan shall reimburse providers for
emergency services and care provided to its enrollees, until the care
results in stabilization of the enrollee, except as provided in
subdivision (c).  As long as federal or state law requires that
emergency services and care be provided without first questioning the
patient's ability to pay, a health care service plan shall not
require a provider to obtain authorization prior to the provision of
emergency services and care necessary to stabilize the enrollee's
emergency medical condition.
   (c) Payment for emergency services and care may be denied only if
the health care service plan reasonably determines that the emergency
services and care were never performed; provided that a health care
service plan may deny reimbursement to a provider for a medical
screening examination in cases when the plan enrollee did not require
emergency services and care and the enrollee reasonably should have
known that an emergency did not exist.  A health care service plan
may require prior authorization as a prerequisite for payment for
necessary medical care following stabilization of an emergency
medical condition.
   (d) If there is a disagreement between the health care service
plan and the provider regarding the need for necessary medical care,
following stabilization of the enrollee, the plan shall assume
responsibility for the care of the patient either by having medical
personnel contracting with the plan personally take over the care of
the patient within a reasonable amount of time after the
disagreement, or by having another general acute care hospital under
contract with the plan agree to accept the transfer of the patient as
provided in Section 1317.2, Section 1317.2a, or other pertinent
statute.  However, this requirement shall not apply to necessary
medical care provided in hospitals outside the service area of the
health care service plan.  If the health care service plan fails to
satisfy the requirements of this subdivision, further necessary care
shall be deemed to have been authorized by the plan.  Payment for
this care may not be denied.
   (e) A health care service plan may delegate the responsibilities
enumerated in this section to the plan's contracting medical
providers.
   (f) Subdivisions (b), (c), (d), (g), and (h) shall not apply with
respect to a nonprofit health care service plan that has 3,500,000
enrollees and maintains a prior authorization system that includes
the availability by telephone within 30 minutes of a practicing
emergency department physician.
   (g) The Department of Managed Health Care shall adopt by July 1,
1995, on an emergency basis, regulations governing instances when an
enrollee requires medical care following stabilization of an
emergency medical condition, including appropriate timeframes for a
health care service plan to respond to requests for treatment
authorization.
   (h) The Department of Managed Health Care shall adopt, by July 1,
1999, on an emergency basis, regulations governing instances when an
enrollee in the opinion of the treating provider requires necessary
medical care following stabilization of an emergency medical
condition, including appropriate timeframes for a health care service
plan to respond to a request for treatment authorization from a
treating provider who has a contract with a plan.
   (i) The definitions set forth in Section 1317.1 shall control the
construction of this section.
  SEC. 37.  Section 1373.95 of the Health and Safety Code is amended
to read:
   1373.95.  (a) On or before July 1, 1996, every health care service
plan that provides coverage on a group basis shall file with the
Department of Managed Health Care, a written policy describing how
the health plan shall facilitate the continuity of care for new
enrollees receiving services during a current episode of care for an
acute condition from a nonparticipating provider.  This written
policy shall describe the process used to facilitate the continuity
of care, including the assumption of care by a participating
provider.  Notice of the policy and information regarding how
enrollees may request a review under the policy shall be provided to
all new enrollees, except those enrollees who are not eligible as
described in subdivision (e).  A copy of the written policy shall be
provided to eligible enrollees upon request.
   (b) The written policy shall describe how requests to continue
services with an existing provider are reviewed by the plan.  The
policy shall ensure that reasonable consideration is given to the
potential clinical effect that a change of provider would have on the
enrollee's treatment for the acute condition.
   (c) A health care service plan may require any nonparticipating
provider whose services are continued pursuant to the written policy
to agree in writing to meet the same contractual terms and conditions
that are imposed upon the plan's participating providers, including
location within the plan's service area, reimbursement methodologies,
and rates of payment.  If the health care service plan determines
that a patient's health care treatment should temporarily continue
with the patient's existing provider, the health care service plan
shall not be liable for actions resulting solely from the negligence,
malpractice, or other tortious or wrongful acts arising out of the
provision of services by the existing provider.
   (d) Nothing in this section shall require a health care service
plan to cover services or provide benefits that are not otherwise
covered under the terms and conditions of the plan contract.
   (e) The written policy shall not apply to any enrollee who is
offered an out-of-network option, or who had the option to continue
with his or her previous health plan or provider and instead
voluntarily chose to change health plans.
   (f) This section shall not apply to health plan contracts that
include out-of-network coverage under which the enrollee is able to
obtain services from the enrollee's existing provider.
   (g) For purposes of this section, "provider" refers to a person
who is described in subdivision (f) of Section 900 of the Business
and Professions Code.
  SEC. 38.  Section 1374.30 of the Health and Safety Code is amended
to read:
   1374.30.  (a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review System.

   (b) For the purposes of this chapter, "disputed health care
service" means any health care service eligible for coverage and
payment under a health                                           care
service plan contract that has been denied, modified, or delayed by
a decision of the plan, or by one of its contracting providers, in
whole or in part due to a finding that the service is not medically
necessary.  A decision regarding a disputed health care service
relates to the practice of medicine and is not a coverage decision.
A disputed health care service does not include services provided by
a specialized health care service plan, except to the extent that the
service (1) involves the practice of medicine, or (2) is provided
pursuant to a contract with a health care service plan that covers
hospital, medical, or surgical benefits.  If a plan, or one of its
contracting providers, issues a decision denying, modifying, or
delaying health care services, based in whole or in part on a finding
that the proposed health care services are not a covered benefit
under the contract that applies to the enrollee, the statement of
decision shall clearly specify the provision in the contract that
excludes that coverage.
   (c) For the purposes of this chapter, "coverage decision" means
the approval or denial of health care services by a plan, or by one
of its contracting entities, substantially based on a finding that
the provision of a particular service is included or excluded as a
covered benefit under the terms and conditions of the health care
service plan contract.  A "coverage decision" does not encompass a
plan or contracting provider decision regarding a disputed health
care service.
   (d) (1) All enrollee grievances involving a disputed health care
service are eligible for review under the Independent Medical Review
System if the requirements of this article are met.  If the
department finds that an enrollee grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the enrollee
request for review shall be treated as a request for the department
to review the grievance pursuant to subdivision (b) of Section 1368.
All other enrollee grievances, including grievances involving
coverage decisions, remain eligible for review by the department
pursuant to subdivision (b) of Section 1368.
   (2) In any case in which an enrollee or provider asserts that a
decision to deny, modify, or delay health care services was based, in
whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article or pursuant to
subdivision (b) of Section 1368.
   (3) The department shall be the final arbiter when there is a
question as to whether an enrollee grievance is a disputed health
care service or a coverage decision.  The department shall establish
a process to complete an initial screening of an enrollee grievance.
If there appears to be any medical necessity issue, the grievance
shall be resolved pursuant to an independent medical review as
provided under this article or pursuant to subdivision (b) of Section
1368.
   (e) Every health care service plan contract that is issued,
amended, renewed, or delivered in this state on or after January 1,
2000, shall, effective January 1, 2001, provide an enrollee with the
opportunity to seek an independent medical review whenever health
care services have been denied, modified, or delayed by the plan, or
by one of its contracting providers, if the decision was based in
whole or in part on a finding that the proposed health care services
are not medically necessary.  For purposes of this article, an
enrollee may designate an agent to act on his or her behalf, as
described in paragraph (2) of subdivision (b) of Section 1368.  The
provider may join with or otherwise assist the enrollee in seeking an
independent medical review, and may advocate on behalf of the
enrollee.
   (f) Medi-Cal beneficiaries enrolled in a health care service plan
shall not be excluded from participation.  Medicare beneficiaries
enrolled in a health care service plan shall not be excluded unless
expressly preempted by federal law.  Reviews of cases for Medi-Cal
enrollees shall be conducted in accordance with statutes and
regulations for the Medi-Cal program.
   (g) The department may seek to integrate the quality of care and
consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute resolution
procedures of other health care agency programs, including the
Medicare and Medi-Cal programs, in a way that minimizes the potential
for duplication, conflict, and added costs.  Nothing in this
subdivision shall be construed to limit any rights conferred upon
enrollees under this chapter.
   (h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.
   (i) No later than January 1, 2001, every health care service plan
shall prominently display in every plan member handbook or relevant
informational brochure, in every plan contract, on enrollee evidence
of coverage forms, on copies of plan procedures for resolving
grievances, on letters of denials issued by either the plan or its
contracting organization, on the grievance forms required under
Section 1368, and on all written responses to grievances, information
concerning the right of an enrollee to request an independent
medical review in cases where the enrollee believes that health care
services have been improperly denied, modified, or delayed by the
plan, or by one of its contracting providers.
   (j) An enrollee may apply to the department for an independent
medical review when all of the following conditions are met:
   (1) (A) The enrollee's provider has recommended a health care
service as medically necessary, or
   (B) The enrollee has received urgent care or emergency services
that a provider determined was medically necessary, or
   (C) The enrollee, in the absence of a provider recommendation
under subparagraph (A) or the receipt of urgent care or emergency
services by a provider under subparagraph (B), has been seen by an
in-plan provider for the diagnosis or treatment of the medical
condition for which the enrollee seeks independent review.  The plan
shall expedite access to an in-plan provider upon request of an
enrollee.  The in-plan provider need not recommend the disputed
health care service as a condition for the enrollee to be eligible
for an independent review.
   For purposes of this article, the enrollee's provider may be an
out-of-plan provider.  However, the plan shall have no liability for
payment of services provided by an out-of-plan provider, except as
provided pursuant to subdivision (c) of Section 1374.34.
   (2) The disputed health care service has been denied, modified, or
delayed by the plan, or by one of its contracting providers, based
in whole or in part on a decision that the health care service is not
medically necessary.
   (3) The enrollee has filed a grievance with the plan or its
contracting provider pursuant to Section 1368, and the disputed
decision is upheld or the grievance remains unresolved after 30 days.
  The enrollee shall not be required to participate in the plan's
grievance process for more than 30 days.  In the case of a grievance
that requires expedited review pursuant to Section 1368.01, the
enrollee shall not be required to participate in the plan's grievance
process for more than three days.
   (k) An enrollee may apply to the department for an independent
medical review of a decision to deny, modify, or delay health care
services, based in whole or in part on a finding that the disputed
health care services are not medically necessary, within six months
of any of the qualifying periods or events under subdivision (j).
The director may extend the application deadline beyond six months if
the circumstances of a case warrant the extension.
   (l) The enrollee shall pay no application or processing fees of
any kind.
   (m) As part of its notification to the enrollee regarding a
disposition of the enrollee's grievance that denies, modifies, or
delays health care services, the plan shall provide the enrollee with
a one-page application form approved by the department, and an
addressed envelope, which the enrollee may return to initiate an
independent medical review.  The plan shall include on the form any
information required by the department to facilitate the completion
of the independent medical review, such as the enrollee's diagnosis
or condition, the nature of the disputed health care service sought
by the enrollee, a means to identify the enrollee's case, and any
other material information.  The form shall also include the
following:
   (1) Notice that a decision not to participate in the independent
medical review process may cause the enrollee to forfeit any
statutory right to pursue legal action against the plan regarding the
disputed health care service.
   (2) A statement indicating the enrollee's consent to obtain any
necessary medical records from the plan, any of its contracting
providers, and any out-of-plan provider the enrollee may have
consulted on the matter, to be signed by the enrollee.
   (3) Notice of the enrollee's right to provide information or
documentation, either directly or through the enrollee's provider,
regarding any of the following:
   (A) A provider recommendation indicating that the disputed health
care service is medically necessary for the enrollee's medical
condition.
   (B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the enrollee's medical condition.
   (C) Reasonable information supporting the enrollee's position that
the disputed health care service is or was medically necessary for
the enrollee's medical condition, including all information provided
to the enrollee by the plan or any of its contracting providers,
still in the possession of the enrollee, concerning a plan or
provider decision regarding disputed health care services, and a copy
of any materials the enrollee submitted to the plan, still in the
possession of the enrollee, in support of the grievance, as well as
any additional material that the enrollee believes is relevant.
   (n) Upon notice from the department that the health care service
plan's enrollee has applied for an independent medical review, the
plan or its contracting providers shall provide to the independent
medical review organization designated by the department a copy of
all of the following documents within three business days of the plan'
s receipt of the department's notice of a request by an enrollee for
an independent review:
   (1) (A) A copy of all of the enrollee's medical records in the
possession of the plan or its contracting providers relevant to each
of the following:
   (i) The enrollee's medical condition.
   (ii) The health care services being provided by the plan and its
contracting providers for the condition.
   (iii) The disputed health care services requested by the enrollee
for the condition.
   (B) Any newly developed or discovered relevant medical records in
the possession of the plan or its contracting providers after the
initial documents are provided to the independent medical review
organization shall be forwarded immediately to the independent
medical review organization.  The plan shall concurrently provide a
copy of medical records required by this subparagraph to the enrollee
or the enrollee's provider, if authorized by the enrollee, unless
the offer of medical records is declined or otherwise prohibited by
law.  The confidentiality of all medical record information shall be
maintained pursuant to applicable state and federal laws.
   (2) A copy of all information provided to the enrollee by the plan
and any of its contracting providers concerning plan and provider
decisions regarding the enrollee's condition and care, and a copy of
any materials the enrollee or the enrollee's provider submitted to
the plan and to the plan's contracting providers in support of the
enrollee's request for disputed health care services.  This
documentation shall include the written response to the enrollee's
grievance, required by paragraph (4) of subdivision (a) of Section
1368.  The confidentiality of any enrollee medical information shall
be maintained pursuant to applicable state and federal laws.
   (3) A copy of any other relevant documents or information used by
the plan or its contracting providers in determining whether disputed
health care services should have been provided, and any statements
by the plan and its contracting providers explaining the reasons for
the decision to deny, modify, or delay disputed health care services
on the basis of medical necessity.  The plan shall concurrently
provide a copy of documents required by this paragraph, except for
any information found by the director to be legally privileged
information, to the enrollee and the enrollee's provider.  The
department and the independent review organization shall maintain the
confidentiality of any information found by the director to be the
proprietary information of the plan.
  SEC. 39.  Section 1374.32 of the Health and Safety Code is amended
to read:
   1374.32.  (a) By January 1, 2001, the department shall contract
with one or more independent medical review organizations in the
state to conduct reviews for purposes of this article.  The
independent medical review organizations shall be independent of any
health care service plan doing business in this state.  The director
may establish additional requirements, including conflict-of-interest
standards, consistent with the purposes of this article, that an
organization shall be required to meet in order to qualify for
participation in the Independent Medical Review System and to assist
the department in carrying out its responsibilities.
   (b) The independent medical review organizations and the medical
professionals retained to conduct reviews shall be deemed to be
medical consultants for purposes of Section 43.98 of the Civil Code.

   (c) The independent medical review organization, any experts it
designates to conduct a review, or any officer, director, or employee
of the independent medical review organization shall not have any
material professional, familial, or financial affiliation, as
determined by the director, with any of the following:
   (1) The plan.
   (2) Any officer, director, or employee of the plan.
   (3) A physician, the physician's medical group, or the independent
practice association involved in the health care service in dispute.

   (4) The facility or institution at which either the proposed
health care service, or the alternative service, if any, recommended
by the plan, would be provided.
   (5) The development or manufacture of the principal drug, device,
procedure, or other therapy proposed by the enrollee whose treatment
is under review, or the alternative therapy, if any, recommended by
the plan.
   (6) The enrollee or the enrollee's immediate family.
   (d) In order to contract with the department for purposes of this
article, an independent medical review organization shall meet all of
the following requirements:
   (1) The organization shall not be an affiliate or a subsidiary of,
nor in any way be owned or controlled by, a health plan or a trade
association of health plans.  A board member, director, officer, or
employee of the independent medical review organization shall not
serve as a board member, director, or employee of a health care
service plan.  A board member, director, or officer of a health plan
or a trade association of health plans shall not serve as a board
member, director, officer, or employee of an independent medical
review organization.
   (2) The organization shall submit to the department the following
information upon initial application to contract for purposes of this
article and, except as otherwise provided, annually thereafter upon
any change to any of the following information:
   (A) The names of all stockholders and owners of more than 5
percent of any stock or options, if a publicly held organization.
   (B) The names of all holders of bonds or notes in excess of one
hundred thousand dollars ($100,000), if any.
   (C) The names of all corporations and organizations that the
independent medical review organization controls or is affiliated
with, and the nature and extent of any ownership or control,
including the affiliated organization's type of business.
   (D) The names and biographical sketches of all directors,
officers, and executives of the independent medical review
organization, as well as a statement regarding any past or present
relationships the directors, officers, and executives may have with
any health care service plan, disability insurer, managed care
organization, provider group, or board or committee of a plan,
managed care organization, or provider group.
   (E) (i) The percentage of revenue the independent medical review
organization receives from expert reviews, including, but not limited
to, external medical reviews, quality assurance reviews, and
utilization reviews.
   (ii) The names of any health care service plan or provider group
for which the independent medical review organization provides review
services, including, but not limited to, utilization review, quality
assurance review, and external medical review.  Any change in this
information shall be reported to the department within five business
days of the change.
   (F) A description of the review process including, but not limited
to, the method of selecting expert reviewers and matching the expert
reviewers to specific cases.
   (G) A description of the system the independent medical review
organization uses to identify and recruit medical professionals to
review treatment and treatment recommendation decisions, the number
of medical professionals credentialed, and the types of cases and
areas of expertise that the medical professionals are credentialed to
review.
   (H) A description of how the independent medical review
organization ensures compliance with the conflict-of-interest
provisions of this section.
   (3) The organization shall demonstrate that it has a quality
assurance mechanism in place that does the following:
   (A) Ensures that the medical professionals retained are
appropriately credentialed and privileged.
   (B) Ensures that the reviews provided by the medical professionals
are timely, clear, and credible, and that reviews are monitored for
quality on an ongoing basis.
   (C) Ensures that the method of selecting medical professionals for
individual cases achieves a fair and impartial panel of medical
professionals who are qualified to render recommendations regarding
the clinical conditions and the medical necessity of treatments or
therapies in question.
   (D) Ensures the confidentiality of medical records and the review
materials, consistent with the requirements of this section and
applicable state and federal law.
   (E) Ensures the independence of the medical professionals retained
to perform the reviews through conflict-of-interest policies and
prohibitions, and ensures adequate screening for
conflicts-of-interest, pursuant to paragraph (5).
   (4) Medical professionals selected by independent medical review
organizations to review medical treatment decisions shall be
physicians or other appropriate providers who meet the following
minimum requirements:
   (A) The medical professional shall be a clinician knowledgeable in
the treatment of the enrollee's medical condition, knowledgeable
about the proposed treatment, and familiar with guidelines and
protocols in the area of treatment under review.
   (B) Notwithstanding any other provision of law, the medical
professional shall hold a nonrestricted license in any state of the
United States, and for physicians, a current certification by a
recognized American medical specialty board in the area or areas
appropriate to the condition or treatment under review.  The
independent medical review organization shall give preference to the
use of a physician licensed in California as the reviewer, except
when training and experience with the issue under review reasonably
requires the use of an out-of-state reviewer.
   (C) The medical professional shall have no history of disciplinary
action or sanctions, including, but not limited to, loss of staff
privileges or participation restrictions, taken or pending by any
hospital, government, or regulatory body.
   (5) Neither the expert reviewer, nor the independent medical
review organization, shall have any material professional, material
familial, or material financial affiliation with any of the
following:
   (A) The plan or a provider group of the plan, except that an
academic medical center under contract to the plan to provide
services to enrollees may qualify as an independent medical review
organization provided it will not provide the service and provided
the center is not the developer or manufacturer of the proposed
treatment.
   (B) Any officer, director, or management employee of the plan.
   (C) The physician, the physician's medical group, or the
independent practice association (IPA) proposing the treatment.
   (D) The institution at which the treatment would be provided.
   (E) The development or manufacture of the treatment proposed for
the enrollee whose condition is under review.
   (F) The enrollee or the enrollee's immediate family.
   (6) For purposes of this section, the following terms shall have
the following meanings:
   (A) "Material familial affiliation" means any relationship as a
spouse, child, parent, sibling, spouse's parent, or child's spouse.
   (B) "Material professional affiliation" means any
physician-patient relationship, any partnership or employment
relationship, a shareholder or similar ownership interest in a
professional corporation, or any independent contractor arrangement
that constitutes a material financial affiliation with any expert or
any officer or director of the independent medical review
organization.  "Material professional affiliation" does not include
affiliations that are limited to staff privileges at a health
facility.
   (C) "Material financial affiliation" means any financial interest
of more than 5 percent of total annual revenue or total annual income
of an independent medical review organization or individual to which
this subdivision applies.  "Material financial affiliation" does not
include payment by the plan to the independent medical review
organization for the services required by this section, nor does
"material financial affiliation" include an expert's participation as
a contracting plan provider where the expert is affiliated with an
academic medical center or a National Cancer Institute-designated
clinical cancer research center.
   (e) The department shall provide, upon the request of any
interested person, a copy of all nonproprietary information, as
determined by the director, filed with it by an independent medical
review organization seeking to contract under this article.  The
department may charge a nominal fee to the interested person for
photocopying the requested information.
  SEC. 40.  Section 1374.9 of the Health and Safety Code is amended
to read:
   1374.9.  For violations of Section 1374.7, the commissioner may,
after appropriate notice and opportunity for hearing, by order levy
administrative penalties as follows:
   (a) Any health care service plan that violates Section 1374.7, or
that violates any rule or order adopted or issued pursuant to this
section, is liable for administrative penalties of not less than two
thousand five hundred dollars ($2,500) for each first violation, and
of not less than five thousand dollars ($5,000) nor more than ten
thousand dollars ($10,000) for each second violation, and of not less
than fifteen thousand dollars ($15,000) and not more than one
hundred thousand dollars ($100,000) for each subsequent violation.
   (b)  The administrative penalties shall be paid to the Managed
Health Care Fund.
   (c)  The administrative penalties available to the commissioner
pursuant to this section are not exclusive, and may be sought and
employed in any combination with civil, criminal, and other
administrative remedies deemed advisable by the commissioner to
enforce the provisions of this chapter.
  SEC. 41.  Section 1380 of the Health and Safety Code is amended to
read:
   1380.  (a) The department shall conduct periodically an onsite
medical survey of the health delivery system of each plan.  The
survey shall include a review of the procedures for obtaining health
services, the procedures for regulating utilization, peer review
mechanisms, internal procedures for assuring quality of care, and the
overall performance of the plan in providing health care benefits
and meeting the health needs of the subscribers and enrollees.
   (b) The survey shall be conducted by a panel of qualified health
professionals experienced in evaluating the delivery of prepaid
health care.  The department shall be authorized to contract with
professional organizations or outside personnel to conduct medical
surveys and these contracts shall be on a noncompetitive bid basis
and shall be exempt from Chapter 2 (commencing with Section 10290) of
Part 2 of Division 2 of the Public Contract Code.  These
organizations or personnel shall have demonstrated the ability to
objectively evaluate the delivery of health care by plans or health
maintenance organizations.
   (c) Surveys performed pursuant to this section shall be conducted
as often as deemed necessary by the director to assure the protection
of subscribers and enrollees, but not less frequently than once
every three years.  Nothing in this section shall be construed to
require the survey team to visit each clinic, hospital office, or
facility of the plan.  To avoid duplication, the director shall
employ, but is not bound by, the following:
   (1) For hospital-based health care service plans, to the extent
necessary to satisfy the requirements of this section, the findings
of inspections conducted pursuant to Section 1279.
   (2) For health care service plans contracting with the State
Department of Health Services pursuant to the Waxman-Duffy Prepaid
Health Plan Act, the findings of reviews conducted pursuant to
Section 14456 of the Welfare and Institutions Code.
   (3) To the extent feasible, reviews of providers conducted by
professional standards review organizations, and surveys and audits
conducted by other governmental entities.
               (d) Nothing in this section shall be construed to
require the medical survey team to review peer review proceedings and
records conducted and compiled under Section 1370 or medical
records.  However, the director shall be authorized to require onsite
review of these peer review proceedings and records or medical
records where necessary to determine that quality health care is
being delivered to subscribers and enrollees.  Where medical record
review is authorized, the survey team shall insure that the
confidentiality of physician-patient relationship is safeguarded in
accordance with existing law and neither the survey team nor the
director or the director's staff may be compelled to disclose this
information except in accordance with the physician-patient
relationship.  The director shall ensure  that the confidentiality of
the peer review proceedings and records is maintained.  The
disclosure of the peer review proceedings and records to the director
or the medical survey team shall not alter the status of the
proceedings or records as privileged and confidential communications
pursuant to Sections 1370 and 1370.1.
   (e) The procedures and standards utilized by the survey team shall
be made available to the plans prior to the conducting of medical
surveys.
   (f) During the survey the members of the survey team shall examine
the complaint files kept by the plan pursuant to Section 1368.  The
survey report issued pursuant to subdivision (i) shall include a
discussion of the plan's record for handling complaints.
   (g) During the survey the members of the survey team shall offer
such advice and assistance to the plan as deemed appropriate.
   (h) (1) Survey results shall be publicly reported by the director
as quickly as possible but no later than 180 days following the
completion of the survey unless the director determines, in his or
her discretion, that additional time is reasonably necessary to fully
and fairly report the survey results.  The director shall provide
the plan with an overview of survey findings and notify the plan of
deficiencies found by the survey team at least 90 days prior to the
release of the public report.
   (2) Reports on all surveys, deficiencies, and correction plans
shall be open to public inspection except that no surveys,
deficiencies, or correction plans shall be made public unless the
plan has had an opportunity to review the report and file a response
within 45 days of the date that the department provided the report to
the plan.  After reviewing the plan's response, the director shall
issue a final report that excludes any survey information and legal
findings and conclusions determined by the director to be in error,
describes compliance efforts, identifies deficiencies that have been
corrected by the plan by the time of the director's receipt of the
plan's 45-day response, and describes remedial actions for
deficiencies requiring longer periods to the remedy required by the
director or proposed by the plan.
   (3) The final report shall not include a description of
"acceptable" or of "compliance" for any uncorrected deficiency.
   (4) Upon making the final report available to the public, a single
copy of a summary of the final report's findings shall be made
available free of charge by the department to members of the public,
upon request.  Additional copies of the summary may be provided at
the department's cost.  The summary shall include a discussion of
compliance efforts, corrected deficiencies, and proposed remedial
actions.
   (5) If requested by the plan, the director shall append the plan's
response to the final report issued pursuant to paragraph (2), and
shall append to the summary issued pursuant to paragraph (4) a brief
statement provided by the plan summarizing its response to the
report.  The plan may modify its response or statement at any time
and provide modified copies to the department for public distribution
no later than 10 days from the date of notification from the
department that the final report will be made available to the
public.  The plan may file an addendum to its response or statement
at any time after the final report has been made available to the
public.  The addendum to the response or statement shall also be made
available to the public.
   (6) Any information determined by the director to be confidential
pursuant to statutes relating to the disclosure of records, including
the California Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code), shall
not be made public.
   (i) (1) The director shall give the plan a reasonable time to
correct deficiencies.  Failure on the part of the plan to comply to
the director's satisfaction shall constitute cause for disciplinary
action against the plan.
   (2) No later than 18 months following release of the final report
required by subdivision (h), the department shall conduct a follow-up
review to determine and report on the status of the plan's efforts
to correct deficiencies.  The department's follow-up report shall
identify any deficiencies reported pursuant to subdivision (h) that
have not been corrected to the satisfaction of the director.
   (3) If requested by the plan, the director shall append the plan's
response to the follow-up report issued pursuant to paragraph (2).
The plan may modify its response at any time and provide modified
copies to the department for public distribution no later than 10
days from the date of notification from the department that the
follow-up report will be made available to the public.  The plan may
file an addendum to its response at any time after the follow-up
report has been made available to the public.  The addendum to the
response or statement shall also be made available to the public.
   (j) The director shall provide to the plan and to the executive
officer of the Board of Dental Examiners a copy of information
relating to the quality of care of any licensed dental provider
contained in any report described in subdivisions (h) and (i) that,
in the judgment of the  director, indicates clearly excessive
treatment, incompetent treatment, grossly negligent treatment,
repeated negligent acts, or unnecessary treatment.  Any confidential
information provided by the director shall not be made public
pursuant to this subdivision.  Notwithstanding any other provision of
law, the disclosure of this information to the plan and to the
executive officer shall not operate as a waiver of confidentiality.
There shall be no liability on the part of, and no cause of action of
any nature shall arise against, the State of California, the
Department of Managed Health Care, the Director of the Department of
Managed Health Care, the Board of Dental Examiners, or any officer,
agent, employee, consultant, or contractor of the state or the
department or the board for the release of any false or unauthorized
information pursuant to this section, unless the release of that
information is made with knowledge and malice.
   (k) Nothing in this section shall be construed as affecting the
director's authority pursuant to Article 7 (commencing with Section
1386) or Article 8 (commencing with Section 1390) of this chapter.
  SEC. 42.  Section 1380.1 of the Health and Safety Code is amended
to read:
   1380.1.  (a) (1) With the department as the lead agency, the
department and the State Department of Health Services shall convene
a working group for the purpose of developing standards for quality
audits of providers that provide services to enrollees pursuant to
contracts governed by this chapter.
   (2) The working group shall include, but not be limited to,
representatives of health care service plans, consumer organizations,
public and private purchasers of health care, and providers,
including medical groups, independent practice associations, and
health facilities.
   (3) The working group shall be comprised so that a balance of
perspectives of providers, plans, purchasers of health care, and
consumers can reasonably be expected to be represented.
   (4) The department may consult with the National Commission on
Quality Assurance, the federal Health Care Financing Authority, and
other organizations that have worked toward defining quality
standards.
   (5) The department shall consult with the State Department of
Health Services on the implementation of this section.
   (6) The Legislature recognizes that streamlining audits, and
defining quality standards, are best achieved with consideration of
federal regulatory and third party auditing standards.
   (b) To the extent feasible, the goals of this working group shall
include, but not be limited to, all of the following:
   (1) Recommending ways to reduce duplicative audits of providers by
health plans.
   (2) Developing a core set of health care quality standards that
can serve as baseline requirements for meeting audit standards for
contracts governed by this chapter.
   (3) Recommending data collection methods and processes that can
result in better coordination of health care quality audits, lessen
the burden on providers, and maintain high quality standards for
providers.
   (4) Developing recommendations as to how health care service plans
can best access quality information about providers in order to
ensure higher quality standards than those core standards identified
by the working group.
   (5) Recommending standards for determining appropriate nonprofit
organizations to conduct audits pursuant to the standards developed
in this section.
   (6) Determining how the results of quality audits shall be made
available to the public.
   (c) The department shall report to the Governor, the Department of
Managed Health Care, the State Department of Health Services, and
the appropriate committees of the Legislature, on or before January
1, 2000, its findings and recommendations pursuant to this section.

  SEC. 43.  Section 1383.15 of the Health and Safety Code is amended
to read:
   1383.15.  (a) When requested by an enrollee or participating
health professional who is treating an enrollee, a health care
service plan shall provide or authorize a second opinion by an
appropriately qualified health care professional.  Reasons for a
second opinion to be provided or authorized shall include, but are
not limited to, the following:
   (1) If the enrollee questions the reasonableness or necessity of
recommended surgical procedures.
   (2) If the enrollee questions a diagnosis or plan of care for a
condition that threatens loss of life, loss of limb, loss of bodily
function, or substantial impairment, including, but not limited to, a
serious chronic condition.
   (3) If the clinical indications are not clear or are complex and
confusing, a diagnosis is in doubt due to conflicting test results,
or the treating health professional is unable to diagnose the
condition, and the enrollee requests an additional diagnosis.
   (4) If the treatment plan in progress is not improving the medical
condition of the enrollee within an appropriate period of time given
the diagnosis and plan of care, and the enrollee requests a second
opinion regarding the diagnosis or continuance of the treatment.
   (5) If the enrollee has attempted to follow the plan of care or
consulted with the initial provider concerning serious concerns about
the diagnosis or plan of care.
   (b) For purposes of this section, an appropriately qualified
health care professional is a primary care physician, specialist, or
other licensed health care provider who is acting within his or her
scope of practice and who possesses a clinical background, including
training and expertise, related to the particular illness, disease,
condition or conditions associated with the request for a second
opinion.  For purposes of a specialized health care service plan, an
appropriately qualified health care professional is a licensed health
care provider who is acting within his or her scope of practice and
who possesses a clinical background, including training and
expertise, related to the particular illness, disease, condition or
conditions associated with the request for a second opinion.
   (c) If an enrollee or participating health professional who is
treating an enrollee requests a second opinion pursuant to this
section, an authorization or denial shall be provided in an
expeditious manner.  When the enrollee's condition is such that the
enrollee faces an imminent and serious threat to his or her health,
including, but not limited to, the potential loss of life, limb, or
other major bodily function, or lack of timeliness that would be
detrimental to the enrollee's ability to regain maximum function, the
second opinion shall be authorized or denied in a timely fashion
appropriate for the nature of the enrollee's condition, not to exceed
72 hours after the plan's receipt of the request, whenever possible.
  Each plan shall file with the Department of Managed Health Care
timelines for responding to requests for second opinions for cases
involving emergency needs, urgent care, and other requests by July 1,
2000, and within 30 days of any amendment to the timelines.  The
timelines shall be made available to the public upon request.
   (d) If a health care service plan approves a request by an
enrollee for a second opinion, the enrollee shall be responsible only
for the costs of applicable copayments that the plan requires for
similar referrals.
   (e) If the enrollee is requesting a second opinion about care from
his or her primary care physician, the second opinion shall be
provided by an appropriately qualified health care professional of
the enrollee's choice within the same physician organization.
   (f) If the enrollee is requesting a second opinion about care from
a specialist, the second opinion shall be provided by any provider
of the enrollee's choice from any independent practice association or
medical group within the network of the same or equivalent
specialty.  If the specialist is not within the same physician
organization, the plan shall incur the cost or negotiate the fee
arrangements of that second opinion, beyond the applicable copayments
which shall be paid by the enrollee.  If not authorized by the plan,
additional medical opinions not within the original physician
organization shall be the responsibility of the enrollee.
   (g) If there is no participating plan provider within the network
who meets the standard specified in subdivision (b), then the plan
shall authorize a second opinion by an appropriately qualified health
professional outside of the plan's provider network.  In approving a
second opinion either inside or outside of the plan's provider
network, the plan shall take into account the ability of the enrollee
to travel to the provider.
   (h) The health care service plan shall require the second opinion
health professional to provide the enrollee and the initial health
professional with a consultation report, including any recommended
procedures or tests that the second opinion health professional
believes appropriate.  Nothing in this section shall be construed to
prevent the plan from authorizing, based on its independent
determination, additional medical opinions concerning the medical
condition of an enrollee.
   (i) If the health care service plan denies a request by an
enrollee for a second opinion, it shall notify the enrollee in
writing of the reasons for the denial and shall inform the enrollee
of the right to file a grievance with the plan.  The notice shall
comply with subdivision (b) of Section 1368.02.
   (j) Unless authorized by the plan, in order for services to be
covered the enrollee shall obtain services only from a provider who
is participating in, or under contract with, the plan pursuant to the
specific contract under which the enrollee is entitled to health
care services.  The plan may limit referrals to its network of
providers if there is a participating plan provider who meets the
standard specified in subdivision (b).
   (k) This section shall not apply to health care service plan
contracts that provide benefits to enrollees through preferred
provider contracting arrangements if, subject to all other terms and
conditions of the contract that apply generally to all other
benefits, access to and coverage for second opinions are not limited.

  SEC. 44.  Section 1391.5 of the Health and Safety Code is amended
to read:
   1391.5.  (a) If, after examination or investigation, the director
has reasonable grounds to believe that irreparable loss and injury to
the plan's enrollee or enrollees occurred or may occur as a result
of any act or practice unless the director acts immediately, the
director may, by written order, addressed to that person, order the
discontinuance of the unsafe or injurious act or practice.  The order
shall become effective immediately, but shall not become final
except in accordance with this section.
   (b) No order issued pursuant to this section shall become final
except after notice to the affected person of the director's
intention to make the order final and of the reasons for the finding.
  The director shall also notify that person that upon receiving a
request for hearing by the plan, the matter shall be set for hearing
to commence with 15 business days after receipt of the request,
unless that person consents to have the hearing commence at a later
date.
   (c) If no hearing is requested within 15 days after the mailing or
service of the required notice, and none is ordered by the director,
the order shall become final on the 15th day without a hearing and
shall not be subject to review by any court or agency notwithstanding
subdivision (b) of Section 1397.
   (d) If a hearing is requested or ordered, it shall be held in
accordance with the provisions of the Administrative Procedure Act
(Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code), and the director shall have all of
the powers granted under that act.
   (e) If, upon conclusion of the hearing, it appears to the director
that the affected person has conducted business in an unsafe or
injurious manner, the director shall make the order of discontinuance
final.
   (f) For purposes of this section, "person" includes any plan,
solicitor firm, or any representative thereof, a solicitor, or any
other person defined in subdivision (j) of Section 1345.
  SEC. 45.  Section 1393.6 of the Health and Safety Code is amended
to read:
   1393.6.  For violations of Article 3.1 (commencing with Section
1357) and Article 3.15 (commencing with Section 1357.50), the
director may, after appropriate notice and opportunity for hearing,
by order levy administrative penalties as follows:
   (a) Any person, solicitor, or solicitor firm, other than a health
care service plan, who willfully violates any provision of this
chapter, or who willfully violates any rule or order adopted or
issued pursuant to this chapter, is liable for administrative
penalties of not less than two hundred fifty dollars ($250) for each
first violation, and of not less than one thousand dollars ($1,000)
and not more than two thousand five hundred dollars ($2,500) for each
subsequent violation.
   (b) Any health care service plan that willfully violates any
provision of this chapter, or that willfully violates any rule or
order adopted or issued pursuant to this chapter, is liable for
administrative penalties of not less than two thousand five hundred
dollars ($2,500) for each first violation, and of not less than five
thousand dollars ($5,000) nor more than ten thousand dollars
($10,000) for each second violation, and of not less than fifteen
thousand dollars ($15,000) and not more than one hundred thousand
dollars ($100,000) for each subsequent violation.
   (c) The administrative penalties shall be paid to the Managed
Health Care Fund.
   (d) The administrative penalties available to the director
pursuant to this section are not exclusive, and may be sought and
employed in any combination with civil, criminal, and other
administrative remedies deemed advisable by the director to enforce
the provisions of this chapter.
  SEC. 46.  Section 1397.5 of the Health and Safety Code is amended
to read:
   1397.5.  (a) The director shall make and file annually with the
Department of Managed Health Care as a public record, an aggregate
summary of grievances against plans filed with the director by
enrollees or subscribers.  This summary shall include at least all of
the following information:
   (1) The total number of grievances filed.
   (2) The types of grievances.
   (b) The summary set forth in subdivision (a) shall include the
following disclaimer:
THIS INFORMATION IS PROVIDED FOR STATISTICAL PURPOSES ONLY.  THE
DIRECTOR OF THE DEPARTMENT OF MANAGED CARE HAS NEITHER INVESTIGATED
NOR DETERMINED WHETHER THE GRIEVANCES COMPILED WITHIN THIS SUMMARY
ARE REASONABLE OR VALID.
   (c) Nothing in this section shall require or authorize the
disclosure of grievances filed with or received by the director and
made confidential pursuant to any other provision of law including,
but not limited to, the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code) and the Information Practices Act of 1977 (Chapter 1
(commencing with Section 1798) of Title 1.8 of Part 4 of Division 3
of the Civil Code).  Nothing in this section shall affect any other
provision of law including, but not limited to, the California Public
Records Act and the Information Practices Act of 1977.
  SEC. 47.  Section 1398 of the Health and Safety Code is repealed.

  SEC. 48.  Section 11758.47 of the Health and Safety Code is amended
to read:
   11758.47.  Service providers may assist Medi-Cal beneficiaries,
upon request, to file a fair hearing request in accordance with
Chapter 7 (commencing with Section 10950) of Part 2 of Division 9 of
the Welfare and Institutions Code, or may inform Medi-Cal
beneficiaries about the Department of Managed Health Care's toll-free
telephone number for health care service plan members or the State
Department of Health Services' ombudsman for Medi-Cal beneficiaries
enrolled in Medi-Cal managed care plans.
  SEC. 49.  Section 32121 of the Health and Safety Code is amended to
read:
   32121.  Each local district shall have and may exercise the
following powers:
   (a) To have and use a corporate seal and alter it at its pleasure.

   (b) To sue and be sued in all courts and places and in all actions
and proceedings whatever.
   (c) To purchase, receive, have, take, hold, lease, use, and enjoy
property of every kind and description within and without the limits
of the district, and to control, dispose of, convey, and encumber the
same and create a leasehold interest in the same for the benefit of
the district.
   (d) To exercise the right of eminent domain for the purpose of
acquiring real or personal property of every kind necessary to the
exercise of any of the powers of the district.
   (e) To establish one or more trusts for the benefit of the
district, to administer any trust declared or created for the benefit
of the district, to designate one or more trustees for trusts
created by the district, to receive by gift, devise, or bequest, and
hold in trust or otherwise, property, including corporate securities
of all kinds, situated in this state or elsewhere, and where not
otherwise provided, dispose of the same for the benefit of the
district.
   (f) To employ legal counsel to advise the board of directors in
all matters pertaining to the business of the district, to perform
the functions in respect to the legal affairs of the district as the
board may direct, and to call upon the district attorney of the
county in which the greater part of the land in the district is
situated for legal advice and assistance in all matters concerning
the district, except that if that county has a county counsel, the
directors may call upon the county counsel for legal advice and
assistance.
   (g) To employ any officers and employees, including architects and
consultants, the board of directors deems necessary to carry on
properly the business of the district.
   (h) To prescribe the duties and powers of the health care facility
administrator, secretary, and other officers and employees of any
health care facilities of the district, to establish offices as may
be appropriate and to appoint board members or employees to those
offices, and to determine the number of, and appoint, all officers
and employees and to fix their compensation.  The officers and
employees shall hold their offices or positions at the pleasure of
the boards of directors.
   (i) To do any and all things that an individual might do that are
necessary for, and to the advantage of, a health care facility and a
nurses' training school, or a child care facility for the benefit of
employees of the health care facility or residents of the district.
   (j) To establish, maintain, and operate, or provide assistance in
the operation of, one or more health facilities or health services,
including, but not limited to, outpatient programs, services, and
facilities, retirement programs, services, and facilities, chemical
dependency programs, services, and facilities, or other health care
programs, services, and facilities and activities at any location
within or without the district for the benefit of the district and
the people served by the district.
   "Health care facilities," as used in this subdivision, means those
facilities defined in subdivision (b) of Section 32000.1 and
specifically includes freestanding chemical dependency recovery
units. "Health facilities," as used in this subdivision, may also
include those facilities defined in subdivision (d) of Section 15432
of the Government Code.
   (k) To do any and all other acts and things necessary to carry out
this division.
   (l) To acquire, maintain, and operate ambulances or ambulance
services within and without the district.
   (m) To establish, maintain, and operate, or provide assistance in
the operation of, free clinics, diagnostic and testing centers,
health education programs, wellness and prevention programs,
rehabilitation, aftercare, and any other health care services
provider, groups, and organizations that are necessary for the
maintenance of good physical and mental health in the communities
served by the district.
   (n) To establish and operate in cooperation with its medical staff
a coinsurance plan between the hospital district and the members of
its attending medical staff.
   (o) To establish, maintain, and carry on its activities through
one or more corporations, joint ventures, or partnerships for the
benefit of                                            the health care
district.
   (p) (1) To transfer, at fair market value, any part of its assets
to one or more nonprofit corporations to operate and maintain the
assets.  A transfer pursuant to this paragraph shall be deemed to be
at fair market value if an independent consultant, with expertise in
methods of appraisal and valuation and in accordance with applicable
governmental and industry standards for appraisal and valuation,
determines that fair and reasonable consideration is to be received
by the district for the transferred district assets.  Before the
district transfers, pursuant to this paragraph, 50 percent or more of
the district's assets to one or more nonprofit corporations, in sum
or by increment, the elected board shall, by resolution, submit to
the voters of the district a measure proposing the transfer.  The
measure shall be placed on the ballot of a special election held upon
the request of the district or the ballot of the next regularly
scheduled election occurring at least 88 days after the resolution of
the board.  If a majority of the voters voting on the measure vote
in its favor, the transfer shall be approved.  The campaign
disclosure requirements applicable to local measures provided under
Chapter 4 (commencing with Section 84100) of Title 9 of the
Government Code shall apply to this election.
   (2) To transfer, for the benefit of the communities served by the
district, in the absence of adequate consideration, any part of the
assets of the district, including without limitation real property,
equipment, and other fixed assets, current assets, and cash, relating
to the operation of the district's health care facilities to one or
more nonprofit corporations to operate and maintain the assets.
   (A) A transfer of 50 percent or more of the district's assets, in
sum or by increment, pursuant to this paragraph shall be deemed to be
for the benefit of the communities served by the district only if
all of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least five properly noticed
open and public meetings in compliance with the Ralph M. Brown Act,
Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code, and Section 32106.
   (ii) The transfer agreement provides that the hospital district
shall approve all initial board members of the nonprofit corporation
and any subsequent board members as may be specified in the transfer
agreement.
   (iii) The transfer agreement provides that all assets transferred
to the nonprofit corporation, and all assets accumulated by the
corporation during the term of the transfer agreement arising out of
or from the operation of the transferred assets, are to be
transferred back to the district upon termination of the transfer
agreement, including any extension of the transfer agreement.
   (iv) The transfer agreement commits the nonprofit corporation to
operate and maintain the district's health care facilities and its
assets for the benefit of the communities served by the district.
   (v) The transfer agreement requires that any funds received from
the district at the outset of the agreement or any time thereafter
during the term of the agreement be used only to reduce district
indebtedness, to acquire needed equipment for the district health
care facilities, to operate, maintain, and make needed capital
improvements to the district's health care facilities, to provide
supplemental health care services or facilities for the communities
served by the district, or to conduct other activities that would
further a valid public purpose if undertaken directly by the
district.
   (B) A transfer of 33 percent or more but less than 50 percent of
the district's assets, in sum or by increment, pursuant to this
paragraph shall be deemed to be for the benefit of the communities
served by the district only if both of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least two properly noticed
open and public meetings in compliance with the Ralph M. Brown Act
(Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code), and Section 32106.
   (ii) The transfer agreement meets all of the requirements of
clauses (ii) to (v), inclusive, of subparagraph (A).
   (C) A transfer of 10 percent or more but less than 33 percent of
the district's assets, in sum or by increment, pursuant to this
paragraph shall be deemed to be for the benefit of the communities
served by the district only if both of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least two properly noticed
open and public meetings in compliance with the Ralph M. Brown Act
(Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code), and Section 32106.
   (ii) The transfer agreement meets all of the requirements of (iii)
to (v), inclusive, of subparagraph (A).
   (D) Before the district transfers, pursuant to this paragraph, 50
percent or more of the district's assets to one or more nonprofit
corporations, in sum or by increment, the elected board shall, by
resolution, submit to the voters of the district a measure proposing
the transfer.  The measure shall be placed on the ballot of a special
election held upon the request of the district or the ballot of the
next regularly scheduled election occurring at least 88 days after
the resolution of the board.  If a majority of the voters voting on
the measure vote in its favor, the transfer shall be approved.  The
campaign disclosure requirements applicable to local measures
provided under Chapter 4 (commencing with Section 84100) of Title 9
of the Government Code shall apply to this election.
   (E) Notwithstanding the other provisions of this paragraph, a
hospital district shall not transfer any portion of its assets to a
private nonprofit organization that is owned or controlled by a
religious creed, church, or sectarian denomination in the absence of
adequate consideration.
   (3) If the district board has previously transferred less than 50
percent of the district's assets pursuant to this subdivision, before
any additional assets are transferred the board shall hold a public
hearing and shall make a public determination that the additional
assets to be transferred will not, in combination with any assets
previously transferred, equal 50 percent or more of the total assets
of the district.
   (4) The amendments to this subdivision made during the 1991-92
Regular Session, and the amendments made to this subdivision and to
Section 32126 made during the 1993-94 Regular Session, shall only
apply to transfers made on or after the effective dates of the acts
amending this subdivision.  The amendments to this subdivision made
during those sessions shall not apply to any of the following:
   (A) A district that has discussed and adopted a board resolution,
prior to September 1, 1992, that authorizes the development of a
business plan for an integrated delivery system.
   (B) A lease agreement, transfer agreement, or both between a
district and a nonprofit corporation that were in full force and
effect as of September 1, 1992, for as long as that lease agreement,
transfer agreement, or both remain in full force and effect.
   (5) Notwithstanding paragraph (4), if substantial amendments are
proposed to be made to a transfer agreement described in subparagraph
(A) or (B) of paragraph (4), the amendments shall be fully discussed
in advance of the district board's decision to adopt the amendments
in at least two properly noticed open and public meetings in
compliance with Section 32106 and the Ralph M. Brown Act, (Chapter 9
(commencing with Section 54950) of Part 1 of Division 2 of Title 5 of
the Government Code).
   (6) Notwithstanding paragraphs (4) and (5), a transfer agreement
described in subparagraph (A) or (B) of paragraph (4) that provided
for the transfer of less than 50 percent of a district's assets shall
be subject to the requirements of subdivision (p) of Section 32121
when subsequent amendments to that transfer agreement would result in
the transfer, in sum or by increment, of 50 percent or more of a
district's assets to the nonprofit corporation.
   (7) For purposes of this subdivision, a "transfer" means the
transfer of ownership of the assets of a district.  A lease of the
real property or the tangible personal property of a district shall
not be subject to this subdivision except as specified in Section
32121.4 and as required under Section 32126.
   (8) Districts that request a special election pursuant to
paragraph (1) or (2) shall reimburse counties for the costs of that
special election as prescribed pursuant to Section 10520 of the
Elections Code.
   (9) Nothing in this section, including subdivision (j), shall be
construed to permit a local district to obtain or be issued a single
consolidated license to operate a separate physical plant as a
skilled nursing facility or an intermediate care facility that is not
located within the boundaries of the district.
   (10) A transfer of any of the assets of a district to one or more
nonprofit corporations to operate and maintain the assets shall not
be required to meet paragraphs (1) to (9), inclusive, of this
subdivision if all of the following conditions apply at the time of
the transfer:
   (A) The district has entered into a loan that is insured by the
State of California under Chapter 1 (commencing with Section 129000)
of Part 6 of Division 107.
   (B) The district is in default of its loan obligations, as
determined by the Office of Statewide Health Planning and
Development.
   (C) The Office of Statewide Health Planning and Development and
the district, in their best judgment, agree the transfer of some or
all of the assets of the district to a nonprofit corporation or
corporations is necessary to cure the default, and will obviate the
need for foreclosure.  This cure of default provision shall be
applicable prior to the office foreclosing on district hospital
assets.  After the office has foreclosed on district hospital assets,
or otherwise taken possession in accordance with law, the office may
exercise all of its powers to deal with and dispose of hospital
property.
   (D) The transfer and all arrangements necessary thereto are
discussed in advance of the transfer in at least one properly noticed
open and public meeting in compliance with the Ralph M. Brown Act,
Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code and Section 32106.  The meeting
referred to in this paragraph shall be noticed and held within 90
days of notice in writing to the district by the office of an event
of default.  If the meeting is not held within this 90-day period,
the district shall be deemed to have waived this requirement to have
a meeting.
   (11) If a transfer under paragraph (10) is a lease, the lease
shall provide that the assets shall revert to the district at the
conclusion of the leasehold interest.  If the transfer is a sale, the
proceeds shall be used first to retire the obligation insured by the
office, then to retire any other debts of the district.  After
providing for debts, any remaining funds shall revert to the
district.
   (q) To contract for bond insurance, letters of credit, remarketing
services, and other forms of credit enhancement and liquidity
support for its bonds, notes, and other indebtedness and to enter
into reimbursement agreements, monitoring agreements, remarketing
agreements, and similar ancillary contracts in connection therewith.

   (r) To establish, maintain, operate, participate in, or manage
capitated health care plans, health maintenance organizations,
preferred provider organizations, and other managed health care
systems and programs properly licensed by the Department of Insurance
or the Department of Managed Health Care, at any location within or
without the district for the benefit of residents of communities
served by the district.  However, that activity shall not be deemed
to result in or constitute the giving or lending of the district's
credit, assets, surpluses, cash, or tangible goods to, or in aid of,
any person, association, or corporation in violation of Section 6 of
Article XVI of the California Constitution.
   Nothing in this section shall authorize activities that
corporations and other artificial legal entities are prohibited from
conducting by Section 2400 of the Business and Professions Code.
   Any agreement to provide health care coverage that is a health
care service plan, as defined in subdivision (f) of Section 1345,
shall be subject to the provisions of Chapter 2.2 (commencing with
Section 1340) of Division 2, unless exempted pursuant to Section 1343
or 1349.2.
   A district shall not provide health care coverage for any employee
of an employer operating within the communities served by the
district, unless the Legislature specifically authorizes, or has
authorized in this section or elsewhere, the coverage.
   This section shall not authorize any district to contribute its
facilities to any joint venture that could result in transfer of the
facilities from district ownership.
   (s) To provide health care coverage to members of the district's
medical staff, employees of the medical staff members, and the
dependents of both groups, on a self-pay basis.
   (t) This section shall become operative on January 1, 2001.
  SEC. 50.  Section 102910 of the Health and Safety Code is amended
to read:
   102910.  For the purpose of conducting the three-year study
required pursuant to Section 102905, the department is hereby
encouraged to contract with a federally recognized tribe or tribal
organization or an American Indian-controlled health care corporation
or research institution having a record of good standing with the
Department of Managed Health Care and the Indian Health program
within the department, and established competence in the area of
records management.
  SEC. 51.  Section 127580 of the Health and Safety Code is amended
to read:
   127580.  The office, after consultation with the Insurance
Commissioner, the Director of the Department of Managed Health Care,
the State Director of Health Services, and the Director of Industrial
Relations, shall adopt a California uniform billing form format for
professional health care services and a California uniform billing
form format for institutional provider services.  The format for
professional health care services shall be the format developed by
the National Uniform Claim Form Task Force.  The format for
institutional provider services shall be the format developed by the
National Uniform Billing Committee.  The formats shall be acceptable
for billing in federal Medicare and medicaid programs.  The office
shall specify a single uniform system for coding diagnoses,
treatments, and procedures to be used as part of the uniform billing
form formats.  The system shall be acceptable for billing in federal
Medicare and medicaid programs.
  SEC. 52.  Section 128725 of the Health and Safety Code is amended
to read:
   128725.  The functions and duties of the commission shall include
the following:
   (a) Advise the office on the implementation of the new,
consolidated data system.
   (b) Advise the office regarding the ongoing need to collect and
report health facility data and other provider data.
   (c) Annually develop a report to the director of the office
regarding changes that should be made to existing data collection
systems and forms.  Copies of the report shall be provided to the
Senate Health and Human Services Committee and to the Assembly Health
Committee.
   (d) Advise the office regarding changes to the uniform accounting
and reporting systems for health facilities.
   (e) Conduct public meetings for the purposes of obtaining input
from health facilities, other providers, data users, and the general
public regarding this chapter and Chapter 1 (commencing with Section
127125) of Part 2 of Division 107.
   (f) Advise the Secretary of Health and Welfare on the formulation
of general policies which shall advance the purposes of this part.
   (g) Advise the office on the adoption, amendment, or repeal of
regulations it proposes prior to their submittal to the Office of
Administrative Law.
   (h) Advise the office on the format of individual health facility
or other provider data reports and on any technical and procedural
issues necessary to implement this part.
   (i) Advise the office on the formulation of general policies which
shall advance the purposes of Chapter 1 (commencing with Section
127125) of Part 2 of Division 107.
   (j) Recommend, in consultation with a 12-member technical advisory
committee appointed by the chairperson of the commission, to the
office the data elements necessary for the production of outcome
reports required by Section 128745.
   (k) (1) The technical advisory committee appointed pursuant to
subdivision (j) shall be composed of two members who shall be
hospital representatives appointed from a list of at least six
persons nominated by the California Association of Hospitals and
Health Systems, two members who shall be physicians and surgeons
appointed from a list of at least six persons nominated by the
California Medical Association, two members who shall be registered
nurses appointed from a list of at least six persons nominated by the
California Nurses Association, one medical record practitioner who
shall be appointed from a list of at least six persons nominated by
the California Health Information Association, one member who shall
be a representative of a hospital authorized to report as a group
pursuant to subdivision (d) of Section 128760, two members who shall
be representative of California research organizations experienced in
effectiveness review of medical procedures or surgical procedures,
or both procedures, one member representing the Health Access
Foundation, and one member representing the Consumers Union.  Members
of the technical advisory committee shall serve without
compensation, but shall be reimbursed for any actual and necessary
expenses incurred in connection with their duties as members of the
technical advisory committee.
   (2) The commission shall submit its recommendation to the office
regarding the first of the reports required pursuant to subdivision
(a) of Section 128745 no later than January 1, 1993.  The technical
advisory committee shall submit its initial recommendations to the
commission pursuant to subdivision (d) of Section 128750 no later
than January 1, 1994.  The commission, with the advice of the
technical advisory committee, may periodically make additional
recommendations under Sections 128745 and 128750 to the office, as
appropriate.
   (l) (1) Assess the value and usefulness of the reports required by
Sections 127285, 128735, and 128740.  On or before December 1, 1997,
the commission shall submit recommendations to the office to
accomplish all of the following:
   (A) Eliminate redundant reporting.
   (B) Eliminate collection of unnecessary data.
   (C) Augment data bases as deemed valuable to enhance the quality
and usefulness of data.
   (D) Standardize data elements and definitions with other health
data collection programs at both the state and national levels.
   (E) Enable linkage with, and utilization of, existing data sets.
   (F) Improve the methodology and data bases used for quality
assessment analyses, including, but not limited to, risk-adjusted
outcome reports.
   (G) Improve the timeliness of reporting and public disclosure.
   (2) The commission shall establish a committee to implement the
evaluation process.  The committee shall include representatives from
the health care industry, providers, consumers, payers, purchasers,
and government entities, including the Department of Managed Health
Care, the departments that comprise the Health and Welfare Agency,
and others deemed by the commission to be appropriate to the
evaluation of the data bases.  The committee may establish
subcommittees including technical experts.
   (3) In order to ensure the timely implementation of the provisions
of the legislation enacted in the 1997-98 Regular Session that
amended this part, the office shall present an implementation work
plan to the commission.  The work plan shall clearly define goals and
significant steps within specified timeframes that must be completed
in order to accomplish the purposes of that legislation.  The office
shall make periodic progress reports based on the work plan to the
commission.  The commission may advise the Secretary of Health and
Welfare of any significant delays in following the work plan.  If the
commission determines that the office is not making significant
progress toward achieving the goals outlined in the work plan, the
commission shall notify the office and the secretary of that
determination.  The commission may request the office to submit a
plan of correction outlining specific remedial actions and timeframes
for compliance.  Within 90 days of notification, the office shall
submit a plan of correction to the commission.
   (m) (1) As the office and the commission deem necessary, the
commission may establish committees and appoint persons who are not
members of the commission to these committees as are necessary to
carry out the purposes of the commission.  Representatives of area
health planning agencies shall be invited, as appropriate, to serve
on committees established by the office and the commission relative
to the duties and responsibilities of area health planning agencies.
Members of the standing committees shall serve without compensation,
but shall be reimbursed for any actual and necessary expenses
incurred in connection with their duties as members of these
committees.
   (2) Whenever the office or the commission does not accept the
advice of the other body on proposed regulations or on major policy
issues, the office or the commission shall provide a written response
on its action to the other body within 30 days, if so requested.
   (3) The commission or the office director may appeal to the
Secretary of Health and Welfare over disagreements on policy,
procedural, or technical issues.
  SEC. 53.  Section 740 of the Insurance Code is amended to read:
   740.  (a) Notwithstanding any other provision of law, and except
as provided herein, any person or other entity that provides coverage
in this state for medical, surgical, chiropractic, physical therapy,
speech pathology, audiology, professional mental health, dental,
hospital, or optometric expenses, whether the coverage is by direct
payment, reimbursement, or otherwise, shall be presumed to be subject
to the jurisdiction of the department unless the person or other
entity shows that while providing the services it is subject to the
jurisdiction of another agency of this or another state or the
federal government.
   (b) A person or entity may show that it is subject to the
jurisdiction of another agency of this or another state or the
federal government by providing to the commissioner the appropriate
certificate or license issued by the other governmental agency that
permits or qualifies it to provide those services for which it is
licensed or certificated.
   (c) Any person or entity that is unable to show that it is subject
to the jurisdiction of another agency of this or another state or
the federal government, shall submit to an examination by the
commissioner to determine the organization and solvency of the person
or the entity, and to determine whether the person or entity is in
compliance with the applicable provisions of this code, and shall be
required to obtain a certificate of authority to do business in
California and be required to meet all appropriate reserve, surplus,
capital, and other necessary requirements imposed by this code for
all insurers.
   (d) Any person or entity unable to show that it is subject to the
jurisdiction of another agency of this or another state or the
federal government shall be subject to all appropriate provisions of
this code regarding the conduct of its business.
   (e) The department shall prepare and maintain for public
inspection a list of those persons or entities described in
subdivision (a) that are not subject to the jurisdiction of another
agency of this or another state or the federal government and that
the department knows to be operating in this state.  There shall be
no liability of any kind on the part of the state, the department,
and its employees for the accuracy of the list or for any comments
made with respect to it.
   (f) Any administrator licensed by the department who advertises or
administers coverage in this state described in subdivision (a),
that is provided by any person or entity described in subdivision
(c), and where the coverage does not meet all pertinent requirements
specified in this code and that is not provided or completely
underwritten, insured or otherwise fully covered by an admitted life
or disability insurer, hospital service plan or health care service
plan, shall advise and disclose to any purchaser, prospective
purchaser, covered person or entity, and any production agency
licensed by the department involved in the transaction, all financial
and operational information relative to the content and scope of the
plan and, specifically, as to the lack of insurance or other
coverage.
   Any production agency obtaining knowledge of any coverage relative
to the content and scope of a hospital service plan or health care
service plan, as required under this subdivision, shall advise and
disclose to any purchaser, prospective purchaser, covered person or
entity, the knowledge regarding the content and scope of the plan
and, specifically, as to the lack of insurance by an admitted carrier
or other qualified plan.
   (g) A health care service plan, as defined in Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code, shall not be subject to this section.
   (h) The department shall notify, in writing, the Director of the
Department of Managed Health Care whenever it determines that a
multiple employer trust qualifies as a health care service plan
subject to Chapter 2.2 (commencing with Section 1340) of Division 2
of the Health and Safety Code.
                        (i) Any health care service plan, including a
self-insured reimbursement plan that pays for or reimburses any part
of the cost of health care services, operated by any city, county,
city and county, public entity, or political subdivision, or a public
joint labor management trust as described in subdivision (c) of
Section 1349.2 of the Health and Safety Code, that is exempt pursuant
to Section 1349.2 of the Health and Safety Code from the Knox-Keene
Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code), is also
exempt from this code.
  SEC. 54.  Section 742.407 of the Insurance Code is amended to read:

   742.407.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by a multiple employer welfare arrangement.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Health Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 55.  Section 742.435 of the Insurance Code is amended to read:

   742.435.  The Department of Insurance, in consultation with the
Department of Managed Health Care, shall conduct an evaluation of
multiple employer welfare arrangements and report to the Legislature
and the Governor by January 1, 2002.  The evaluation shall include,
but not be limited to, the effectiveness of multiple employer welfare
arrangements in providing participants with options for affordable
health care coverage, and the effect of multiple employer welfare
arrangements on persons or entities purchasing health care coverage
who are not multiple employer welfare arrangement participants.
  SEC. 56.  Section 791.02 of the Insurance Code is amended to read:

   791.02.  As used in this act:
   (a) (1) "Adverse underwriting decision" means any of the following
actions with respect to insurance transactions involving insurance
coverage that is individually underwritten:
   (A) A declination of insurance coverage.
   (B) A termination of insurance coverage.
   (C) Failure of an agent to apply for insurance coverage with a
specific insurance institution that the agent represents and that is
requested by an applicant.
   (D) In the case of a property or casualty insurance coverage:
   (i) Placement by an insurance institution or agent of a risk with
a residual market mechanism, with an unauthorized insurer, or with an
insurance institution that provides insurance to other than
preferred or standard risks, if in fact the placement is at other
than a preferred or standard rate.  An adverse underwriting decision,
in case of placement with an insurance institution which provides
insurance to other than preferred or standard risks, shall not
include such placement where the applicant or insured did not specify
or apply for placement as a preferred or standard risk or placement
with a particular company insuring preferred or standard risks, or
   (ii) The charging of a higher rate on the basis of information
which differs from that which the applicant or policyholder
furnished.
   (E) In the case of a life, health, or disability insurance
coverage, an offer to insure at higher than standard rates.
   (2) Notwithstanding paragraph (1), any of the following actions
shall not be considered adverse underwriting decisions but the
insurance institution or agent responsible for their occurrence shall
nevertheless provide the applicant or policyholder with the specific
reason or reasons for their occurrence:
   (A) The termination of an individual policy form on a class or
statewide basis.
   (B) A declination of insurance coverage solely because such
coverage is not available on a class or statewide basis.
   (C) The rescission of a policy.
   (b) "Affiliate" or "affiliated" means a person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by or is under common control with another person.
   (c) "Agent" means any person licensed pursuant to Chapter 5
(commencing with Section 1621), Chapter 5A (commencing with Section
1759), Chapter 6 (commencing with Section 1760), Chapter 7
(commencing with Section 1800), or Chapter 8 (commencing with Section
1831).
   (d) "Applicant" means any person who seeks to contract for
insurance coverage other than a person seeking group insurance that
is not individually underwritten.
   (e) "Consumer report" means any written, oral, or other
communication of information bearing on a natural person's
creditworthiness, credit standing, credit capacity, character,
general reputation, personal characteristics, or mode of living that
is used or expected to be used in connection with an insurance
transaction.
   (f) "Consumer reporting agency" means any person who:
   (1) Regularly engages, in whole or in part, in the practice of
assembling or preparing consumer reports for a monetary fee.
   (2) Obtains information primarily from sources other than
insurance institutions.
   (3) Furnishes consumer reports to other persons.
   (g) "Control," including the terms "controlled by" or "under
common control with," means the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities, by contract other than a commercial contract for goods or
nonmanagement services, or otherwise, unless the power is the result
of an official position with or corporate office held by the person.

   (h) "Declination of insurance coverage" means a denial, in whole
or in part, by an insurance institution or agent of requested
insurance coverage.
   (i) "Individual" means any natural person who:
   (1) In the case of property or casualty insurance, is a past,
present or proposed named insured or certificate holder;
   (2) In the case of life or disability insurance, is a past,
present or proposed principal insured or certificate holder;
   (3) Is a past, present or proposed policyowner;
   (4) Is a past or present applicant;
   (5) Is a past or present claimant; or
   (6) Derived, derives, or is proposed to derive insurance coverage
under an insurance policy or certificate subject to this act.
   (j) "Institutional source" means any person or governmental entity
that provides information about an individual to an agent, insurance
institution, or insurance-support organization, other than:
   (1) An agent,
   (2) The individual who is the subject of the information, or
   (3) A natural person acting in a personal capacity rather than in
a business or professional capacity.
   (k) "Insurance institution" means any corporation, association,
partnership, reciprocal exchange, interinsurer, Lloyd's insurer,
fraternal benefit society, or other person engaged in the business of
insurance.  "Insurance institution" shall not include agents,
insurance-support organizations, or health care service plans
regulated pursuant to the Knox-Keene Health Care Service Plan Act,
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code.
   (l) "Insurance-support organization" means:
   (1) Any person who regularly engages, in whole or in part, in the
business of assembling or collecting information about natural
persons for the primary purpose of providing the information to an
insurance institution or agent for insurance transactions, including:

   (A) The furnishing of consumer reports or investigative consumer
reports to an insurance institution or agent for use in connection
with an insurance transaction, or
   (B) The collection of personal information from insurance
institutions, agents, or other insurance-support organizations for
the purpose of detecting or preventing fraud, material
misrepresentation or material nondisclosure in connection with
insurance underwriting or insurance claim activity.
   (2) Notwithstanding paragraph (1), the following persons shall not
be considered "insurance-support organizations":  agents,
governmental institutions, insurance institutions, medical care
institutions, medical professionals, and peer review committees.
   (m) "Insurance transaction" means any transaction involving
insurance primarily for personal, family, or household needs rather
than business or professional needs that entails:
   (1) The determination of an individual's eligibility for an
insurance coverage, benefit, or payment, or
   (2) The servicing of an insurance application, policy, contract,
or certificate.
   (n) "Investigative consumer report" means a consumer report or
portion thereof in which information about a natural person's
character, general reputation, personal characteristics, or mode of
living is obtained through personal interviews with the person's
neighbors, friends, associates, acquaintances, or others who may have
knowledge concerning those items of information.
   (o) "Medical care institution" means any facility or institution
that is licensed to provide health care services to natural persons,
including but not limited to, hospitals, skilled nursing facilities,
home health agencies, medical clinics, rehabilitation agencies, and
public health agencies.
   (p) "Medical professional" means any person licensed or certified
to provide health care services to natural persons, including but not
limited to, a physician, dentist, nurse, optometrist, physical or
occupational therapist, psychiatric social worker, clinical
dietitian, clinical psychologist, chiropractor, pharmacist, or speech
therapist.
   (q) "Medical record information" means personal information that:

   (1) Relates to an individual's physical or mental condition,
medical history or medical treatment, and
   (2) Is obtained from a medical professional or medical care
institution, from the individual, or from the individual's spouse,
parent, or legal guardian.
   (r) "Person" means any natural person, corporation, association,
partnership, limited liability company, or other legal entity.
   (s) "Personal information" means any individually identifiable
information gathered in connection with an insurance transaction from
which judgments can be made about an individual's character, habits,
avocations, finances, occupation, general reputation, credit,
health, or any other personal characteristics.  "Personal information"
includes an individual's name and address and "medical record
information" but does not include "privileged information."
   (t) "Policyholder" means any person who:
   (1) In the case of individual property or casualty insurance, is a
present named insured;
   (2) In the case of individual life or disability insurance, is a
present policyowner; or
   (3) In the case of group insurance, which is individually
underwritten, is a present group certificate holder.
   (u) "Pretext interview" means an interview whereby a person, in an
attempt to obtain information about a natural person, performs one
or more of the following acts:
   (1) Pretends to be someone he or she is not,
   (2) Pretends to represent a person he or she is not in fact
representing,
   (3) Misrepresents the true purpose of the interview, or
   (4) Refuses to identify himself or herself upon request.
   (v) "Privileged information" means any individually identifiable
information that both:
   (1) Relates to a claim for insurance benefits or a civil or
criminal proceeding involving an individual.
   (2) Is collected in connection with or in reasonable anticipation
of a claim for insurance benefits or civil or criminal proceeding
involving an individual.  However, information otherwise meeting the
requirements of this division shall nevertheless be considered
"personal information" under this act if it is disclosed in violation
of Section 791.13.
   (w) "Residual market mechanism" means the California FAIR Plan
Association, Chapter 10 (commencing with Section 10101) of Part 1 of
Division 2, and the assigned risk plan, Chapter 1 (commencing with
Section 11550) of Part 3 of Division 2.
   (x) "Termination of insurance coverage" or "termination of an
insurance policy" means either a cancellation or nonrenewal of an
insurance policy, in whole or in part, for any reason other than the
failure to pay a premium as required by the policy.
   (y) "Unauthorized insurer" means an insurance institution that has
not been granted a certificate of authority by the director to
transact the business of insurance in this state.
   (z) "Commissioner" means the Insurance Commissioner; except in the
case of a person or entity subject to the provisions of the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code), and except as to any person defined in subdivision (k) when
engaged in providing information or evaluation to a person or entity
subject to the provisions of that act, and in those instances only,
the term "commissioner" shall mean the Director of the Department of
Managed Health Care.
   (aa) "Insurance" includes a medical service or hospital service
agreement or contract issued by a person or entity subject to the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code).
  SEC. 57.  Section 1068 of the Insurance Code is amended to read:
   1068.  (a) As used in this section, the following definitions
shall apply:
   (1) "Health care service plan" means any plan as defined in
Section 1345 of the Health and Safety Code, but this section does not
apply to specialized health care service contracts.
   (2) "Carrier" means a health care service plan, an insurer issuing
group disability coverage which covers hospital, medical, or
surgical expenses, a nonprofit hospital service plan, or any other
entity responsible for either the payment of benefits for or the
provision of hospital, medical, and surgical benefits under a group
contract.
   (3) "Insolvency" means that the Director of the Department of
Managed Health Care has determined that the health care service plan
is not financially able to provide health care services to its
enrollees and (A) the Director of the Department of Managed Health
Care has taken an action pursuant to Section 1386, 1391, or 1399 of
the Health and Safety Code, or (B) an order requested by the Director
of the Department of Managed Health Care or the Attorney General has
been issued by the superior court under Section 1392, 1393, or
1394.1 of the Health and Safety Code.
   (b) In the event of the insolvency of a health care service plan,
upon order of the commissioner which shall be issued following his or
her receipt of a notice issued by the Director of the Department of
Managed Health Care pursuant to Section 1394.7 of the Health and
Safety Code, any insurer, nonprofit hospital service plan, and any
other entity, other than a health care service plan, responsible for
either the payment of benefits for or the provision of hospital,
medical, and surgical benefits under a group contract, that
participated in the enrollment process with the insolvent health care
service plan at the last regular open enrollment period of a group,
shall offer enrollees of the group in the insolvent health care
service plan a 30-day enrollment period commencing upon the date of
insolvency.  Each such carrier shall offer enrollees of the group in
the insolvent health care service plan the same coverages and rates
that it offered to enrollees of the group at the last regular open
enrollment period of the group.
  SEC. 58.  Section 1068.1 of the Insurance Code is amended to read:

   1068.1.  (a) As used in this section:
   (1) "Carrier" means a specialized health care service plan, and
any of the following entities which offer coverage comparable to the
coverages offered by a specialized health care service plan:  an
insurer issuing group disability coverage; a nonprofit hospital
service plan; or other entity responsible for either the payment of
benefits for or the provision of services under a group contract.
   (2) "Insolvency" means that the Director of the Department of
Managed Health Care has determined that the specialized health care
service plan is not financially able to provide specialized health
care services to its enrollees and (A) the Director of the Department
of Managed Health Care has taken an action pursuant to Section 1386,
1391, or 1399 of the Health and Safety Code, or (B) an order
requested by the commissioner or the Attorney General has been issued
by the superior court under Section 1392, 1393, or 1394.1 of the
Health and Safety Code.
   (3) "Specialized health care service plan" means any plan
authorized to issue only specialized health care service plan
contracts as defined in Section 1345 of the Health and Safety Code.
   (b) In the event of the insolvency of a specialized health care
service plan, upon order of the commissioner which shall be issued
following his or her receipt of a notice issued by the Director of
the Department of Managed Health Care pursuant to Section 1394.8 of
the Health and Safety Code, all carriers that participated in the
enrollment process with the insolvent specialized health care service
plan at a group's last regular open enrollment period for the same
type of specialized health care service benefits shall offer the
group's enrollees in the insolvent specialized health care service
plan a 30-day enrollment period commencing upon the date of
insolvency.  Each such carrier shall offer enrollees of the insolvent
specialized health care service plan the same specialized coverage
and rates that it had offered to the enrollees of the group at its
last regular open enrollment period.
  SEC. 59.  Section 10123.35 of the Insurance Code is amended to
read:
   10123.35.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by a self-insured welfare benefit plan.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Health Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 60.  Section 10140.1 of the Insurance Code is amended to read:

   10140.1.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by an admitted insurer licensed to issue life or disability
insurance, except life and disability income policies issued or
delivered on or after January 1, 1995, that are contingent upon
review or testing for other diseases or medical conditions.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics, of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
                                          (f) Each disclosure made in
violation of this section is a separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Health Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 60.5.  Section 10123.68 of the Insurance Code is amended to
read:
   10123.68.  (a) When requested by an insured or contracting health
professional who is treating an insured, a disability insurer that
covers hospital, medical, or surgical expenses shall authorize a
second opinion by an appropriately qualified health care
professional.  Reasons for a second opinion to be provided or
authorized shall include, but are not limited to, the following:
   (1) If the insured questions the reasonableness or necessity of
recommended surgical procedures.
   (2) If the insured questions a diagnosis or plan of care for a
condition that threatens loss of life, loss of limb, loss of bodily
function, or substantial impairment, including, but not limited to, a
serious chronic condition.
   (3) If clinical indications are not clear or are complex and
confusing, a diagnosis is in doubt due to conflicting test results,
or the treating health professional is unable to diagnose the
condition and the insured requests an additional diagnosis.
   (4) If the treatment plan in progress is not improving the medical
condition of the insured within an appropriate period of time given
the diagnosis and plan of care, and the insured requests a second
opinion regarding the diagnosis or continuance of the treatment.
   (5) If the insured has attempted to follow the plan of care or
consulted with the initial provider concerning serious concerns about
the diagnosis or plan of care.
   (b) For purposes of this section, an appropriately qualified
health care professional is a primary care physician, specialist, or
other licensed health care provider who is acting within his or her
scope of practice and who possesses a clinical background, including
training and expertise, related to the particular illness, disease,
condition or conditions associated with the request for a second
opinion.
   (c) If an insured or participating health professional who is
treating an insured requests a second opinion pursuant to this
section, an authorization or denial shall be provided in an
expeditious manner.  When the insured's condition is such that the
insured faces an imminent and serious threat to his or her health,
including, but not limited to, the potential loss of life, limb, or
other major bodily function, or lack of timeliness that would be
detrimental to the insured's life or health or could jeopardize the
insured's ability to regain maximum function, the second opinion
shall be authorized or denied in a timely fashion appropriate to the
nature of the insured's condition, no to exceed 72 hours after the
insurer's receipt of the request, whenever possible.  Each insurer
shall file with the Department of Insurance timelines for responding
to requests for second opinions for cases involving emergency needs,
urgent care, and other requests by July 1, 2000, and within 30 days
of any amendment to the timelines.  The timelines shall be made
available to the public upon request.
   (d) If an insurer approves a request by an insured for a second
opinion, the insured shall be responsible only for the costs of
applicable copayments that the insurer requires for similar
referrals.
   (e) If the insured is requesting a second opinion about care from
his or her primary care physician, the second opinion shall be
provided by an appropriately qualified health care professional of
the insured's choice who is contracted with the insurer.
   (f) If the insured is requesting a second opinion about care from
a specialist, the second opinion shall be provided by any provider of
the same or equivalent specialty, of the insured's choice, within
the insurer's provider network, if the insurance contract limits
second opinions to within a network.
   (g) The insurer may limit second opinions to its network of
providers if the insurance contract limits the benefit to within a
network of providers and there is a participating provider who meets
the standard specified in subdivision (b).  If there is no
participating provider who meets this standard, then the insurer
shall authorize a second opinion by an appropriately qualified health
professional outside of the insurer's provider network.  In
approving a second opinion either inside or outside of the insurer's
provider network, the insurer shall take into account the ability of
the insured to travel to the provider.
   (h) The insurer shall require the second opinion health
professional to provide the insured and the initial health
professional with a consultation report, including any recommended
procedures or tests that the second opinion health professional
believes appropriate.  Nothing in this section shall be construed to
prevent the insurer from authorizing, based on its independent
determination, additional medical opinions concerning the medical
condition of an insured.
   (i) If the insurer denies a request by an insured for a second
opinion, it shall notify the insured in writing of the reasons for
the denial and shall inform the insured of the right to dispute the
denial, and the procedures for exercising that right.
   (j) If the insurance contract limits health care services to
within a network of providers, in order for coverage to be in force,
the insured shall obtain services only from a provider who is
participating in, or under contract with, the insurer pursuant to the
specific insurance contract under which the insured is entitled to
health care service benefits.
   (k) This section shall not apply to any policy or contract of
disability insurance that covers hospital, medical, or surgical
expenses and that does not limit second opinions, subject to all
other terms and conditions of the contract.
   (l) This section shall not apply to accident-only, specified
disease, or hospital indemnity health insurance policies.
  SEC. 61.  Section 10169 of the Insurance Code is amended to read:
   10169.  (a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review System.

   (b) For the purposes of this chapter, "disputed health care
service" means any health care service eligible for coverage and
payment under a disability insurance contract that has been denied,
modified, or delayed by a decision of the insurer, or by one of its
contracting providers, in whole or in part due to a finding that the
service is not medically necessary.  A decision regarding a disputed
health care service relates to the practice of medicine and is not a
coverage decision.  A disputed health care service does not include
services provided by a group or individual policy of vision-only or
dental-only coverage, except to the extent that (1) the service
involves the practice of medicine, or (2) is provided pursuant to a
contract with a disability insurer that covers hospital, medical, or
surgical benefits.  If an insurer, or one of its contracting
providers, issues a decision denying, modifying, or delaying health
care services, based in whole or in part on a finding that the
proposed health care services are not a covered benefit under the
contract that applies to the insured, the statement of decision shall
clearly specify the provision in the contract that excludes that
coverage.
   (c) For the purposes of this chapter, "coverage decision" means
the approval or denial of health care services by a disability
insurer, or by one of its contracting entities, substantially based
on a finding that the provision of a particular service is included
or excluded as a covered benefit under the terms and conditions of
the disability insurance contract.  A coverage decision does not
encompass a disability insurer or contracting provider decision
regarding a disputed health care service.
   (d) (1) All insured grievances involving a disputed health care
service are eligible for review under the Independent Medical Review
System if the requirements of this article are met.  If the
department finds that an insured grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the insured
request for review shall be treated as a request for the department
to review the grievance.  All other insured grievances, including
grievances involving coverage decisions, remain eligible for review
by the department.
   (2) In any case in which an insured or provider asserts that a
decision to deny, modify, or delay health care services was based, in
whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article.
   (3) The department shall be the final arbiter when there is a
question as to whether an insured grievance is a disputed health care
service or a coverage decision.  The department shall establish a
process to complete an initial screening of an insured grievance.  If
there appears to be any medical necessity issue, the grievance shall
be resolved pursuant to an independent medical review as provided
under this article.
   (e) Every disability insurance contract that is issued, amended,
renewed, or delivered in this state on or after January 1, 2000,
shall, effective, January 1, 2001, provide an insured with the
opportunity to seek an independent medical review whenever health
care services have been denied, modified, or delayed by the insurer,
or by one of its contracting providers, if the decision was based in
whole or in part on a finding that the proposed health care services
are not medically necessary.  For purposes of this article, an
insured may designate an agent to act on his or her behalf.  The
provider may join with or otherwise assist the insured in seeking an
independent medical review, and may advocate on behalf of the
insured.
   (f) Medicare beneficiaries enrolled in Medicare + Choice products
shall not be excluded unless expressly preempted by federal law.
   (g) The department may seek to integrate the quality of care and
consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute resolution
procedures of other health care agency programs, including the
Medicare program, in a way that minimizes the potential for
duplication, conflict, and added costs.  Nothing in this subdivision
shall be construed to limit any rights conferred upon insureds under
this chapter.
   (h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.
   (i) No later than January 1, 2001, every disability insurer shall
prominently display in every insurer member handbook or relevant
informational brochure, in every insurance contract, on insured
evidence of coverage forms, on copies of insurer procedures for
resolving grievances, on letters of denials issued by either the
insurer or its contracting organization, and on all written responses
to grievances, information concerning the right of an insured to
request an independent medical review in cases where the insured
believes that health care services have been improperly denied,
modified, or delayed by the insurer, or by one of its contracting
providers.
   (j) An insured may apply to the department for an independent
medical review when all of the following conditions are met:
   (1) (A) The insured's provider has recommended a health care
service as medically necessary, or
   (B) The insured has received urgent care or emergency services
that a provider determined was medically necessary, or
   (C) The insured, in the absence of a provider recommendation under
subparagraph (A) or the receipt of urgent care or emergency services
by a provider under subparagraph (B), has been seen by a contracting
provider for the diagnosis or treatment of the medical condition for
which the insured seeks independent review.  The insurer shall
expedite access to a contracting provider upon request of an insured.
  The contracting provider need not recommend the disputed health
care service as a condition for the insured to be eligible for an
independent review.
   For purposes of this article, the insured's provider may be a
noncontracting provider.  However, the insurer shall have no
liability for payment of services provided by a noncontracting
provider, except as provided pursuant to Section 10169.3.
   (2) The disputed health care service has been denied, modified, or
delayed by the insurer, or by one of its contracting providers,
based in whole or in part on a decision that the health care service
is not medically necessary.
   (3) The insured has filed a grievance with the insurer or its
contracting provider, and the disputed decision is upheld or the
grievance remains unresolved after 30 days.  The insured shall not be
required to participate in the insurer's grievance process for more
than 30 days.  In the case of a grievance that requires expedited
review, the insured shall not be required to participate in the
insurer's grievance process for more than three days.
   (k) An insured may apply to the department for an independent
medical review of a decision to deny, modify, or delay health care
services, based in whole or in part on a finding that the disputed
health care services are not medically necessary, within six months
of any of the qualifying periods or events under subdivision (j).
The commissioner may extend the application deadline beyond six
months if the circumstances of a case warrant the extension.
   (l) The insured shall pay no application or processing fees of any
kind.
   (m) As part of its notification to the insured regarding a
disposition of the insured's grievance that denies, modifies, or
delays health care services, the insurer shall provide the insured
with a one-page application form approved by the department, and an
addressed envelope, which the insured may return to initiate an
independent medical review.  The insurer shall include on the form
any information required by the department to facilitate the
completion of the independent medical review, such as the insured's
diagnosis or condition, the nature of the disputed health care
service sought by the insured, a means to identify the insured's
case, and any other material information.  The form shall also
include the following:
   (1) Notice that a decision not to participate in the independent
review process may cause the insured to forfeit any statutory right
to pursue legal action against the insurer regarding the disputed
health care service.
   (2) A statement indicating the insured's consent to obtain any
necessary medical records from the insurer, any of its contracting
providers, and any noncontracting provider the insured may have
consulted on the matter, to be signed by the insured.
   (3) Notice of the insured's right to provide information or
documentation, either directly or through the insured's provider,
regarding any of the following:
   (A) A provider recommendation indicating that the disputed health
care service is medically necessary for the insured's medical
condition.
   (B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the insured's medical condition.
   (C) Reasonable information supporting the insured's position that
the disputed health care service is or was medically necessary for
the insured's medical condition, including all information provided
to the insured by the insurer or any of its contracting providers,
still in the possession of the insured, concerning an insurer or
provider decision regarding disputed health care services, and a copy
of any materials the insured submitted to the insurer, still in the
possession of the insured, in support of the grievance, as well as
any additional material that the insured believes is relevant.
   (n) Upon notice from the department that the insured has applied
for an independent medical review, the insurer or its contracting
providers, shall provide to the independent medical review
organization designated by the department a copy of all of the
following documents within three business days of the insurer's
receipt of the department's notice of a request by an insured for an
independent review:
   (1) (A) A copy of all of the insured's medical records in the
possession of the insurer or its contracting providers relevant to
each of the following:
   (i) The insured's medical condition.
   (ii) The health care services being provided by the insurer and
its contracting providers for the condition.
   (iii) The disputed health care services requested by the insured
for the condition.
   (B) Any newly developed or discovered relevant medical records in
the possession of the insurer or its contracting providers after the
initial documents are provided to the independent medical review
organization shall be forwarded immediately to the independent
medical review organization.  The insurer shall concurrently provide
a copy of medical records required by this subparagraph to the
insured or the insured's provider, if authorized by the insured,
unless the offer of medical records is declined or otherwise
prohibited by law.  The confidentiality of all medical record
information shall be maintained pursuant to applicable state and
federal laws.
   (2) A copy of all information provided to the insured by the
insurer and any of its contracting providers concerning insurer and
provider decisions regarding the insured's condition and care, and a
copy of any materials the insured or the insured's provider submitted
to the insurer and to the insurer's contracting providers in support
of the insured's request for disputed health care services.  This
documentation shall include the written response to the insured's
grievance.  The confidentiality of any insured medical information
shall be maintained pursuant to applicable state and federal laws.
   (3) A copy of any other relevant documents or information used by
the insurer or its contracting providers in determining whether
disputed health care services should have been provided, and any
statements by the insurer and its contracting providers explaining
the reasons for the decision to deny, modify, or delay disputed
health care services on the basis of medical necessity.  The insurer
shall concurrently provide a copy of documents required by this
paragraph, except for any information found by the commissioner to be
legally privileged information, to the insured and the insured's
provider.  The department and the independent review organization
shall maintain the confidentiality of any information found by the
commissioner to be the proprietary information of the insurer.
  SEC. 62.  Section 10169.2 of the Insurance Code is amended to read:

   10169.2.  (a) By January 1, 2001, the department shall contract
with one or more independent medical review organizations in the
state to conduct reviews for purposes of this article.  The
independent medical review organizations shall be independent of any
disability insurer doing business in this state.  The commissioner
may establish additional requirements, including conflict-of-interest
standards, consistent with the purposes of this article, that an
organization shall be required to meet in order to qualify for
participation in the Independent Medical Review System and to assist
the department in carrying out its responsibilities.
   (b) The independent medical review organizations and the medical
professionals retained to conduct reviews shall be deemed to be
medical consultants for purposes of Section 43.98 of the Civil Code.

   (c) The independent medical review organization, any experts it
designates to conduct a review, or any officer, director, or employee
of the independent medical review organization shall not have any
material professional, familial, or financial affiliation, as
determined by the commissioner, with any of the following:
   (1) The insurer.
   (2) Any officer, director, or employee of the insurer.
   (3) A physician, the physician's medical group, or the independent
practice association involved in the health care service in dispute.

   (4) The facility or institution at which either the proposed
health care service, or the alternative service, if any, recommended
by the insurer, would be provided.
   (5) The development or manufacture of the principal drug, device,
procedure, or other therapy proposed by the insured whose treatment
is under review, or the alternative therapy, if any, recommended by
the insurer.
   (6) The insured or the insured's immediate family.
   (d) In order to contract with the department for purposes of this
article, an independent medical review organization shall meet all of
the following requirements:
   (1) The organization shall not be an affiliate or a subsidiary of,
nor in any way be owned or controlled by, a disability insurer or a
trade association of insurers.  A board member, director, officer, or
employee of the independent medical review organization shall not
serve as a board member, director, or employee of a disability
insurer.  A board member, director, or officer of a disability
insurer or a trade association of insurers shall not serve as a board
member, director, officer, or employee of an independent medical
review organization.
   (2) The organization shall submit to the department the following
information upon initial application to contract for purposes of this
article and, except as otherwise provided, annually thereafter upon
any change to any of the following information:
   (A) The names of all stockholders and owners of more than 5
percent of any stock or options, if a publicly held organization.
   (B) The names of all holders of bonds or notes in excess of one
hundred thousand dollars ($100,000), if any.
   (C) The names of all corporations and organizations that the
independent medical review organization controls or is affiliated
with, and the nature and extent of any ownership or control,
including the affiliated organization's type of business.
   (D) The names and biographical sketches of all directors,
officers, and executives of the independent medical review
organization, as well as a statement regarding any past or present
relationships the directors, officers, and executives may have with
any health care service plan, disability insurer, managed care
organization, provider group, or board or committee of an insurer, a
plan, a managed care organization, or a provider group.
   (E) (i) The percentage of revenue the independent medical review
organization receives from expert reviews, including, but not limited
to, external medical reviews, quality assurance reviews, and
utilization reviews.
   (ii) The names of any insurer or provider group for which the
independent medical review organization provides review services,
including, but not limited to, utilization review, quality assurance
review, and external medical review.  Any change in this information
shall be reported to the department within five business days of the
change.
   (F) A description of the review process including, but not limited
to, the method of selecting expert reviewers and matching the expert
reviewers to specific cases.
   (G) A description of the system the independent medical review
organization uses to identify and recruit medical professionals to
review treatment and treatment recommendation decisions, the number
of medical professionals credentialed, and the types of cases and
areas of expertise that the medical professionals are credentialed to
review.
   (H) A description of how the independent medical review
organization ensures compliance with the conflict-of-interest
provisions of this section.
   (3) The organization shall demonstrate that it has a quality
assurance mechanism in place that does the following:
   (A) Ensures that the medical professionals retained are
appropriately credentialed and privileged.
   (B) Ensures that the reviews provided by the medical professionals
are timely, clear, and credible, and that reviews are monitored for
quality on an ongoing basis.
   (C) Ensures that the method of selecting medical professionals for
individual cases achieves a fair and impartial panel of medical
professionals who are qualified to render recommendations regarding
the clinical conditions and the medical necessity of treatments or
therapies in question.
   (D) Ensures the confidentiality of medical records and the review
materials, consistent with the requirements of this section and
applicable state and federal law.
   (E) Ensures the independence of the medical professionals retained
to perform the reviews through conflict-of-interest policies and
prohibitions, and ensures adequate screening for
conflicts-of-interest, pursuant to paragraph (5).
   (4) Medical professionals selected by independent medical review
organizations to review medical treatment decisions shall be
physicians or other appropriate providers who meet the following
minimum requirements:
   (A) The medical professional shall be a clinician knowledgeable in
the treatment of the insured's medical condition, knowledgeable
about the proposed treatment,
     and familiar with guidelines and protocols in the area of
treatment under review.
   (B) Notwithstanding any other provision of law, the medical
professional shall hold a nonrestricted license in the any state of
the United States, and for physicians, a current certification by a
recognized American medical specialty board in the area or areas
appropriate to the condition or treatment under review.  The
independent medical review organization shall give preference to the
use of a physician licensed in California as the reviewer, except
when training and experience with the issue under review reasonably
requires the use of an out-of-state reviewer.
   (C) The medical professional shall have no history of disciplinary
action or sanctions, including, but not limited to, loss of staff
privileges or participation restrictions, taken or pending by any
hospital, government, or regulatory body.
   (5) Neither the expert reviewer, nor the independent medical
review organization, shall have any material professional, material
familial, or material financial affiliation with any of the
following:
   (A) The disability insurer or a provider group of the insurer,
except that an academic medical center under contract to the insurer
to provide services to insureds may qualify as an independent medical
review organization provided it will not provide the service and
provided the center is not the developer or manufacturer of the
proposed treatment.
   (B) Any officer, director, or management employee of the insurer.

   (C) The physician, the physician's medical group, or the
independent practice association (IPA) proposing the treatment.
   (D) The institution at which the treatment would be provided.
   (E) The development or manufacture of the treatment proposed for
the insured whose condition is under review.
   (F) The insured or the insured's immediate family.
   (6) For purposes of this section, the following terms shall have
the following meanings:
   (A) "Material familial affiliation" means any relationship as a
spouse, child, parent, sibling, spouse's parent, or child's spouse.
   (B) "Material professional affiliation" means any
physician-patient relationship, any partnership or employment
relationship, a shareholder or similar ownership interest in a
professional corporation, or any independent contractor arrangement
that constitutes a material financial affiliation with any expert or
any officer or director of the independent medical review
organization.  "Material professional affiliation" does not include
affiliations that are limited to staff privileges at a health
facility.
   (C) "Material financial affiliation" means any financial interest
of more than 5 percent of total annual revenue or total annual income
of an independent medical review organization or individual to which
this subdivision applies.  "Material financial affiliation" does not
include payment by the insurer to the independent medical review
organization for the services required by this section, nor does
"material financial affiliation" include an expert's participation as
a contracting provider where the expert is affiliated with an
academic medical center or a National Cancer Institute-designated
clinical cancer research center.
   (e) The department shall provide, upon the request of any
interested person, a copy of all nonproprietary information, as
determined by the commissioner, filed with it by an independent
medical review organization seeking to contract under this article.
The department may charge a nominal fee to the interested person for
photocopying the requested information.
   (f) The commissioner may contract with the Department of Managed
Health Care to administer the independent medical review process
established by this article.
  SEC. 63.  Section 10169.3 of the Insurance Code is amended to read:

   10169.3.  (a) Upon receipt of information and documents related to
a case, the medical professional reviewer or reviewers selected to
conduct the review by the independent medical review organization
shall promptly review all pertinent medical records of the insured,
provider reports, as well as any other information submitted to the
organization as authorized by the department or requested from any of
the parties to the dispute by the reviewers.  If reviewers request
information from any of the parties, a copy of the request and the
response shall be provided to all of the parties.  The reviewer or
reviewers shall also review relevant information related to the
criteria set forth in subdivision (b).
   (b) Following its review, the reviewer or reviewers shall
determine whether the disputed health care service was medically
necessary based on the specific medical needs of the insured and any
of the following:
   (A) Peer-reviewed scientific and medical evidence regarding the
effectiveness of the disputed service.
   (B) Nationally recognized professional standards.
   (C) Expert opinion.
   (D) Generally accepted standards of medical practice.
   (E) Treatments that are likely to provide a benefit to a patient
for conditions for which other treatments are not clinically
efficacious.
   (c) The organization shall complete its review and make its
determination in writing, and in layperson's terms to the maximum
extent practicable, within 30 days of the receipt of the application
for review and supporting documentation, or within less time as
prescribed by the commissioner.  If the disputed health care service
has not been provided and the insured's provider or the department
certifies in writing that an imminent and serious threat to the
health of the insured may exist, including, but not limited to,
serious pain, the potential loss of life, limb, or major bodily
function, or the immediate and serious deterioration of the health of
the insured, the analyses and determinations of the reviewers shall
be expedited and rendered within three days of the receipt of the
information.  Subject to the approval of the department, the
deadlines for analyses and determinations involving both regular and
expedited reviews may be extended by the commissioner for up to three
days in extraordinary circumstances or for good cause.
   (d) The medical professionals' analyses and determinations shall
state whether the disputed health care service is medically
necessary.  Each analysis shall cite the insured's medical condition,
the relevant documents in the record, and the relevant findings
associated with the provisions of subdivision (b) to support the
determination.  If more than one medical professional reviews the
case, the recommendation of the majority shall prevail.  If the
medical professionals reviewing the case are evenly split as to
whether the disputed health care service should be provided, the
decision shall be in favor of providing the service.
   (e) The independent medical review organization shall provide the
director, the insurer, the insured, and the insured's provider with
the analyses and determinations of the medical professionals
reviewing the case, and a description of the qualifications of the
medical professionals.  The independent medical review organization
shall keep the names of the reviewers confidential in all
communications with entities or individuals outside the independent
medical review organization, except in cases where the reviewer is
called to testify and in response to court orders.  If more than one
medical professional reviewed the case and the result was differing
determinations, the independent medical review organization shall
provide each of the separate reviewer's analyses and determinations.

   (f) The commissioner shall immediately adopt the determination of
the independent medical review organization, and shall promptly issue
a written decision to the parties that shall be binding on the
insurer.
   (g) After removing the names of the parties, including, but not
limited to, the insured, all medical providers, the insurer, and any
of the insurer's employees or contractors, commissioner decisions
adopting a determination of an independent medical review
organization shall be made available by the department to the public
upon request, at the department's cost and after considering
applicable laws governing disclosure of public records,
confidentiality, and personal privacy.
  SEC. 64.  Section 10169.5 of the Insurance Code is amended to read:

   10169.5.  (a) After considering the results of a competitive
bidding process and any other relevant information on program costs,
the commissioner shall establish a reasonable, per-case reimbursement
schedule to pay the costs of independent medical review organization
reviews, which may vary depending on the type of medical condition
under review and on other relevant factors.
   (b) The costs of the independent medical review system for
insureds shall be borne by disability insurers pursuant to an
assessment fee system established by the commissioner.  In
determining the amount to be assessed, the commissioner shall
consider all appropriations available for the support of this
article, and existing fees paid to the department.  The commissioner
may adjust fees upward or downward, on a schedule set by the
department, to address shortages or overpayments, and to reflect
utilization of the independent review process.
   (c) The commissioner may contract with the Department of Managed
Health Care to administer the requirements of this article.
  SEC. 65.  Section 10196 of the Insurance Code is amended to read:
   10196.  (a) The commissioner, with the advice of the Department of
Managed Health Care, shall prepare a guide that explains the factors
to be considered in selecting long-term care insurance and the
consequences of particular clauses and exclusions.  The guide shall
be made available to the public and to interested organizations upon
request.  Any advertisement in this state dealing with long-term care
insurance shall include notice of availability of this guide from
the commissioner.
   (b) For purposes of this section, "long-term care insurance" means
any insurance policy or rider advertised, marketed, offered, or
designed to provide coverage for not less than 12 consecutive months
for each covered person on an expense incurred, indemnity, prepaid,
or other basis for one or more necessary or medically necessary
diagnostic, preventive, therapeutic, rehabilitative, maintenance, or
personal care services, provided in a setting other than an acute
care unit of a hospital.  "Long-term care insurance" does not include
any insurance policy which is offered primarily to provide basic
Medicare supplement coverage, basic hospital expense coverage, basic
medical-surgical expense coverage, hospital confinement indemnity
coverage, major medical expense coverage, disability income
protection coverage, accident only coverage, or specified disease or
accident coverage.
  SEC. 66.  Section 10270.98 of the Insurance Code is amended to
read:
   10270.98.  Group disability policies may provide, among other
things, that the benefits payable thereunder are subject to reduction
if the individual insured has any other coverage (other than
individual policies or contracts) providing hospital, surgical or
medical benefits, whether on an indemnity basis or a provision of
service basis, resulting in such insured being eligible for more than
100 percent of the covered expenses.
   Except as permitted by this section and by Section 10323, 10369.5,
10369.6, or 11515.5, and except in the case of group practice
prepayment plan contracts which do not provide for coordination of
benefits, to the extent they provide for a reduction of benefits on
account of other coverage with respect to emergency services that are
not obtained from providers that contract with the plan, no group or
individual disability insurance policy or service contract issued by
nonprofit hospital service plans operating under Chapter 11A
(commencing with Section 11491) of Part 2 of Division 2 shall limit
payment of benefits by reason of the existence of other insurance or
service coverage.
   The policy provisions authorized by this section shall contain a
provision that payments of funds may be made directly between
insurers and other providers of benefits.  Such policy provisions
shall also contain a provision that if benefits are provided in the
form of services rather than cash payments the reasonable cash value
of each service rendered shall be deemed to be both an allowable
expense and a benefit paid.  The reasonable cash value of any
contractual benefit provided to the insured in the form of service
rather than cash payment by or through any hospital service
organization or medical service organization or group-practice
prepayment plan shall be deemed an expense incurred by the insured
for such service, whether or not actually incurred, and the liability
of the insurer shall be the same as if the insured had not been
entitled to any such service benefit, unless the policy contains a
provision authorized by Section 10323, 10369.5 or 10369.6 in the case
of an individual disability policy, or by this section, in the case
of a group disability policy.
   This section shall not be construed to require that benefits
payable under group disability policies be subject to reduction by
the benefit amounts payable under Chapter 3 (commencing with Section
2800) of Part 2 of Division 1 of the Unemployment Insurance Code.
   The provisions of this section, and all regulations adopted
pursuant thereto pertaining to coordination of benefits with other
group disability benefits, shall apply to all employers,
labor-management trustee plans, union welfare plans (including those
established in conformity with 29 U.S.C. Sec.  186), employer
organization plans or employee benefit organization plans, health
care service plan contracts, pursuant to regulations adopted by the
Director of the Department of Managed Health Care which shall be
uniform with those issued under this section for those plans that
elect to coordinate benefits, group practice, individual practice,
any other prepayment coverage for medical or dental care or
treatment, and administrators, within the meaning of Section 1759 not
otherwise subject to the provisions of this section whenever such
plan, contract or practice provides or administers hospital,
surgical, medical or dental benefits to employees or agents who are
also covered under one or more additional group disability policies
which are subject to this section or health care service plans.
  SEC. 67.  Section 10704 of the Insurance Code is amended to read:
   10704.  The commissioner may issue regulations that are necessary
to carry out the purposes of this chapter.  Prior to the public
comment period required on the regulations under the Administrative
Procedure Act, the commissioner shall provide the Director of the
Department of Managed Health Care with a copy of the proposed
regulations.  The Director of the Department of Managed Health Care
shall have 30 days to notify the commissioner in writing of any
comments on the regulations.  The Director of the Department of
Managed Health Care's comments shall be included in the public notice
issued on the regulations.  Any rules and regulations issued
pursuant to this subdivision may be adopted as emergency regulations
in accordance with the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code).  Until December 31, 1994, the adoption of
these regulations shall be deemed an emergency and necessary for the
immediate preservation of the public peace, health, safety, or
general welfare.  The regulations shall be enforced by the director.

  SEC. 68.  Section 10733 of the Insurance Code is amended to read:
   10733.  On or after the effective date of this chapter, the board
shall enter into contracts with carriers for the purpose of providing
health benefits coverage to eligible employees and dependents.
Participating carriers shall have, but need not be limited to, all of
the following operating characteristics satisfactory to the board:
   (a) Strong financial condition, including the ability to assume
the risk of providing and paying for covered services.  A
participating carrier may utilize reinsurance, provider risk sharing,
and other appropriate mechanisms to share a portion of the risk.
   (b) Adequate administrative management.
   (c) In the case of the health care service plan, the following
requirements must be met:  (1) on the effective date of the contract,
the health care service plan must be in compliance with the minimum
tangible net equity requirements of the Director of the Department of
Managed Health Care as those requirements will be in effect on
January 1, 1995, and must remain in compliance with these
requirements throughout the duration of the contract; (2) (A) before
the effective date of the contract, the health care service plan must
have devised a system for identifying in a simple and clear fashion
both in its own records and in the medical records of subscribers and
enrollees the fact that the services provided are provided under the
program; and (B) throughout the duration of the contract, the health
care service plan must use that system; and (3) at least 30 days
before the effective date of any contract with the board, the health
care service plan must inform the Director of the Department of
Managed Health Care in writing of the health care service plan's
intent to enter into the contract and must demonstrate in that
letter, to the satisfaction of the Director of the Department of
Managed Health Care, that it has complied with the requirements of
paragraphs (1) and (2).
   (d) A satisfactory grievance procedure.
   (e) Participating carriers that contract with or employ health
care providers shall have mechanisms to accomplish all of the
following, in a manner satisfactory to the board, in consultation
with the carrier's licensing agency.
   (1) Review the quality of care covered.
   (2) Review the appropriateness of care covered.
   (3) Provide accessible health care services.
  SEC. 69.  Section 10734 of the Insurance Code is amended to read:
   10734.  (a) Notwithstanding any other provision of law, the board
shall not be subject to licensure or regulation by the Department of
Insurance or the Department of Managed Health Care, as the case may
be.
   (b) Participating carriers that contract with the program shall be
licensed and in good standing with their licensing agencies.
  SEC. 70.  Section 10810 of the Insurance Code is amended to read:
   10810.  As used in this chapter:
   (a) "Ancillary benefit plan" means a policy or contract written or
administered by a participating carrier that covers dental or vision
benefits for the covered eligible employees of an employer or small
employer and their dependents.
   (b) "Appropriate Regulatory Authority" means the Department of
Insurance except for health care service plans, in which case it
means the Department of Managed Health Care.
   (c) "Benefit plan design" means a specific health coverage product
issued by a carrier to employers or small employers, to trustees of
associations, or to individuals if the coverage is offered through
employment or sponsored by an employer or small employer.  It
includes the services covered and the levels of copayment and
deductibles.
   (d) "Board" means the governing body of the purchasing alliance.
This term shall include the board of directors of a nonprofit
corporation or trust, a for-profit corporation, the general partners
of a partnership, or a sole proprietor.
   (e) "Carrier" means any licensed disability insurance company or
licensed health care service plan or any other entity that writes,
issues, or administers any health benefit plan or ancillary benefit
plan to employers or small employers in this state.
   (f) "Commissioner" means the Insurance Commissioner, who shall
have regulatory jurisdiction over purchasing alliances.
   (g) "Dependent" has the same meaning as in the subdivision (a) of
Section 1357 of the Health and Safety Code and in subdivision (e) of
Section 10700 of this code.
   (h) "Eligible employee" means any permanent employee who is
actively engaged on a full-time basis in the conduct of business of
the employer or small employer and, who has satisfied any employer or
small employer waiting period requirements.  The term includes sole
proprietors or partners of a partnership if they are actively engaged
on a full-time basis in the employer's or small employer's business,
but does not include employees who work on a part-time, temporary,
or substitute basis.
   (i) "Employer" means any corporation, partnership, sole
proprietorship, or other business entity doing business in this state
that may be eligible to participate in a purchasing alliance.  The
term "employer" shall not include "small employer" as defined in
subdivision (s).
   (j) "Enrollee" means an eligible employee or a dependent of an
eligible employee who is enrolled in a health benefit plan or
ancillary benefit plan offered through the purchasing alliance by a
participating carrier.
   (k)  "Health benefit plan" means a policy or contract written or
administered by a participating carrier that arranges or provides
health care benefits for the covered eligible employees of an
employer or small employer and their dependents.  The term does not
include accident only, credit, dental, vision, disability income, or
long-term care insurance, coverage issued as a supplement to
liability insurance, automobile medical payments insurance, or
insurance under which benefits are payable with or without regard to
fault and is statutorily required to be continued in any liability
insurance policy or equivalent self-insurance.
   (l) "Management company" means the company under contract to the
purchasing alliance to provide managerial services for the operation
of the purchasing alliance.
   (m) "Participating carrier" means a carrier that contracts with a
purchasing alliance to provide coverage to enrollees under a health
benefit plan or ancillary benefit plan.
   (n) "Participating employer" means an employer or small employer
who contracts with a purchasing alliance to provide coverage to the
employer's or small employer's employees.
   (o) "Purchasing alliance" means a non-risk-bearing entity issued a
certificate of registration pursuant to this chapter to provide
health benefits through multiple unaffiliated participating carriers
to multiple participating employers, small employers and their
employees within this state as authorized by the commissioner.  That
entity shall include nonprofit corporations, for-profit corporations,
trusts, partnerships, and sole proprietorships.
   (p) "Risk adjustment factor" for small employer benefit plan
designs and contracts has the same meaning as in subdivision (j) of
Section 1357 of the Health and Safety Code and in subdivision (u) of
Section 10700 of this code.
   (q) "Service region" means that portion of the state, designated
by the commissioner pursuant to regulations as described in this
chapter in which each purchasing alliance must fairly and
affirmatively offer, market, and sell all of the health benefit plan
designs offered through the purchasing alliance that are sold or
offered to a small employer to all small employers.
   (r) "Small employer" has the same meaning as in paragraph (1) of
subdivision (l) of Section 1357 of the Health and Safety Code and in
paragraph (1) of subdivision (w) of Section 10700 of this code.
   (s) "Third-party administrator" means the company contracted by
the purchasing alliance to provide administrative services for the
purchasing alliance and that is licensed to provide those services by
the department pursuant to Section 1759.10.
  SEC. 71.  Section 10820 of the Insurance Code is amended to read:
   10820.  (a) The commissioner shall regulate the establishment and
conduct of purchasing alliances as set forth in this chapter.
   (b) No person or entity may market, sell, offer, or contract for a
package of one or more health benefit plans underwritten by two or
more carriers to two or more employers or small employers or their
eligible employees within a purchasing alliance without first being
registered by the commissioner pursuant to this chapter.  This
subdivision does not apply to entities licensed by the Department of
Managed Health Care as health care service plans or entities licensed
by the Department of Insurance as disability insurers except that no
licensed health care service plan or licensed disability insurer may
be registered with the commissioner as a purchasing alliance.  This
chapter does not apply to any entity exempt pursuant to Section
1349.2 of the Health and Safety Code.
   (c) A person or entity not registered by the commissioner as a
purchasing alliance and engaged in the purchase, sale, marketing or
distribution of health insurance or health care benefit plans shall
not hold itself out as an alliance, health insurance purchasing
alliance, purchasing alliance, health alliance, health insurance
purchasing cooperative, or purchasing cooperative, or otherwise use a
confusingly similar name.
   (d) The commissioner shall establish six geographic service
regions throughout which all purchasing alliances shall operate.
These regions shall be established with no region smaller than an
area in which the first three digits of all its postal ZIP Codes are
in common within a county and shall divide no county into more than
two service regions.  Geographic service regions established pursuant
to this section shall, as a group, cover the entire state, and the
areas encompassed in geographic service regions shall be separate and
distinct from regions encompassed in other geographic service
regions.  Geographic service regions may be noncontiguous.
   (e) Nothing in this chapter shall be deemed to be in conflict with
or limit the duties and powers granted to the commissioner under the
laws of this state.
   (f) Purchasing alliances shall report to the commissioner any
suspected or alleged law violations of this chapter.
   (g) Violations of this chapter shall be subject to the penalties
outlined hereafter.
   (h) The commissioner shall adopt reasonable rules and regulations
as are necessary to administer this chapter.
   (i) Nothing in this chapter shall be construed or interpreted to
apply to an entity that has been approved by the Director of the
Department of Managed Health Care, pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code, to act as a solicitor and third-party administrator with
respect to a multiple
carrier or health care service plan marketing cooperative in which
each carrier or health care service plan contracts directly with
subscribing groups or individuals for the provision of health care,
for the arranging for the provision of health care, or for the
provision of coverage for health care.
  SEC. 72.  Section 10856 of the Insurance Code is amended to read:
   10856.  Nothing in this article shall be construed to limit the
existing regulatory authority of the Department of Managed Health
Care to regulate health care service plans or of the Department of
Insurance to regulate disability or life insurers or hospital service
plans.  None of the requirements of this article shall conflict with
the participating carrier's licensing requirements.
  SEC. 73.  Section 12693.36 of the Insurance Code is amended to
read:
   12693.36.  (a) Notwithstanding any other provision of law, the
board shall not be subject to licensure or regulation by the
Department of Insurance or the Department of Managed Health Care, as
the case may be.
   (b) Participating health, dental, and vision plans that contract
with the program and are regulated by either the Insurance
Commissioner or the Department of Managed Health Care shall be
licensed and in good standing with their respective licensing
agencies.  In their application to the program, those entities shall
provide assurance of their standing with the appropriate licensing
entity.
   (c) Local initiatives that have a contract with the State
Department of Health Services, and that contract with the program,
and that are licensed by the Department of Managed Health Care but do
not have a commercial license from the Department of Managed Health
Care, may contract with the board for a maximum of 18 months.  During
this 18-month period, those plans shall be in good standing with the
Department of Managed Health Care and shall demonstrate to the board
that they are making a good faith effort to obtain a commercial
license with the Department of Managed Health Care.  The board may
extend this period to 24 months if the board determines the
additional time is necessary to comply with this requirement.  In
their application to the program, those entities shall provide
assurance of their standing with the Department of Managed Health
Care and shall outline their plans for obtaining commercial
licensure.
   (d) County organized health systems and the special health care
authority established under Section 101675 of the Health and Safety
Code that have a contract with the State Department of Health
Services, and that contract with the program, and that are not
licensed by either the Insurance Commissioner or the Department of
Managed Health Care may contract with the board for a maximum of 24
months.  During this 24-month period those plans shall be in good
standing with the state agency providing oversight to their
operations and shall demonstrate to the board that they are making a
good faith effort to obtain licensure with the Department of
Insurance or the Department of Managed Health Care.  In their
application to the program, those entities shall provide assurance of
their standing with the appropriate state oversight entity and shall
outline their plans for obtaining licensure from the Department of
Insurance or the Department of Managed Health Care.
  SEC. 74.  Section 12693.365 of the Insurance Code is amended to
read:
   12693.365.  Geographic managed care plans that have a contract
with the Department of Health Services, that contract with the
program, and that are licensed by the Department of Managed Health
Care but do not have a commercial license from the Department of
Managed Health Care, may contract with the board for a maximum of 12
months.  During this 12-month period, those plans shall be required
to be in good standing with the Department of Managed Health Care and
shall demonstrate to the board that they are making a good faith
effort to obtain a commercial license from the Department of Managed
Health Care.  In their application to the program, those plans shall
provide assurance of their standing with the Department of Managed
Health Care and shall outline their plans for obtaining commercial
licensure.
  SEC. 75.  Section 12693.37 of the Insurance Code is amended to
read:
   12693.37.  (a) The board shall contract with a broad range of
health plans in an area, if available, to ensure that subscribers
have a choice from among a reasonable number and types of competing
health plans.  The board shall develop and make available objective
criteria for health plan selection and provide adequate notice of the
application process to permit all health plans a reasonable and fair
opportunity to participate.  The criteria and application process
shall allow participating health plans to comply with their state and
federal licensing and regulatory obligations, except as otherwise
provided in this chapter.  Health plan selection shall be based on
the criteria developed by the board.
   (b) (1) In its selection of participating plans the board shall
take all reasonable steps to assure the range of choices available to
each applicant, other than a purchasing credit member, shall include
plans that include in their provider networks and have signed
contracts with traditional and safety net providers.
   (2) Participating health plans shall be required to submit to the
board on an annual basis a report summarizing their provider network.
  The report shall provide, as available, information on the provider
network as it relates to:
   (A) Geographic access for the subscribers.
   (B) Linguistic services.
   (C) The ethnic composition of providers.
   (D) The number of subscribers who selected traditional and safety
net providers.
   (c) (1) The board shall not rely solely on the Department of
Managed Health Care's determination of a health plan network's
adequacy or geographic access to providers in the awarding of
contracts under this part.  The board shall collect and review
demographic, census, and other data to provide to prospective local
initiatives, health plans, or specialized health plans, as defined in
this act, specific provider contracting target areas with
significant numbers of uninsured children in low-income families.
The board shall give priority to those plans, on a county-by-county
basis, that demonstrate that they have included in their prospective
plan networks significant numbers of providers in these geographic
areas.
   (2) Targeted contracting areas are those ZIP Codes or groups of
ZIP Codes or census tracts or groups of census tracts that have a
percentage of uninsured children in low-income families greater than
the overall percentage of uninsured children in low-income families
in that county.
   (d) In each geographic area, the board shall designate a community
provider plan that is the participating health plan which has the
highest percentage of traditional and safety net providers in its
network.  Subscribers selecting such a plan shall be given a family
contribution discount as described in Section 12693.43.
   (e) The board shall establish reasonable limits on health plan
administrative costs.
  SEC. 76.  Section 12695.18 of the Insurance Code is amended to
read:
   12695.18.  "Participating health plan" means any of the following
plans which are lawfully engaged in providing, arranging, paying for,
or reimbursing the cost of personal health care services under
insurance policies or contracts, medical and hospital service
arrangements, or membership contracts, in consideration of premiums
or other periodic charges payable to it, and that contracts with the
program to provide coverage to program subscribers:
   (a) A private insurer holding a valid outstanding certificate of
authority from the Insurance Commissioner.
   (b) A nonprofit hospital service plan qualifying under Chapter 11a
(commencing with Section 11491) of Part 2 of Division 2.
   (c) A nonprofit membership corporation lawfully operating under
the Nonprofit Corporation Law (Division 2 (commencing with Section
5000) of the Corporations Code).
   (d) A health care service plan as defined under subdivision (f) of
Section 1345 of the Health and Safety Code.
   (e) A county or a city and county, in which case no license or
approval from the Department of Insurance or the Department of
Managed Health Care shall be required to meet the requirements of
this part.
   (f) A comprehensive primary care licensed community clinic that is
an organized outpatient freestanding health facility and is not part
of a hospital that delivers comprehensive primary care services, in
which case, no license or approval from the Department of Insurance
or the Department of Managed Health Care shall be required to meet
the requirements of this part.
  SEC. 77.  Section 4600.5 of the Labor Code is amended to read:
   4600.5.  (a) Any health care service plan licensed pursuant to the
Knox-Keene Health Care Service Plan Act, a disability insurer
licensed by the Department of Insurance, or any entity, including,
but not limited to, workers' compensation insurers and third-party
administrators authorized by the administrative director under
subdivision (e), may make written application to the administrative
director to become certified as a health care organization to provide
health care to injured employees for injuries and diseases
compensable under this article.
   (b) Each application for certification shall be accompanied by a
reasonable fee prescribed by the administrative director, sufficient
to cover the actual cost of processing the application.  A
certificate is valid for the period that the director may prescribe
unless sooner revoked or suspended.
   (c) If the health care organization is a health care service plan
licensed pursuant to the Knox-Keene Health Care Service Plan Act, the
administrative director shall certify the plan to provide health
care pursuant to Section 4600.3 if the director finds that the plan
is in good standing with the Department of Managed Health Care and
meets the following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records prepared and submitted to the
Department of Managed Health Care in compliance with the Knox-Keene
Health Care Service Plan Act, relating to financial solvency,
provider accessibility, peer review, utilization review, and quality
assurance, upon request, if the administrative director determines
the information is necessary to verify that the plan is providing
medical treatment to injured employees in compliance with the
requirements of this code.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
Sections 1370 and 1370.1 of the Health and Safety Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (d) If the health care organization is a disability insurer
licensed by the Department of Insurance, and is in compliance with
subdivision (d) of Sections 10133 and 10133.5 of the Insurance Code,
the administrative director shall certify the organization to provide
health care pursuant to Section 4600.3 if the director finds that
the plan is in good standing with the Department of Insurance and
meets the following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records prepared and submitted to the
Department of Insurance in compliance with the Insurance Code
relating to financial solvency, provider accessibility, peer review,
utilization review, and quality assurance, upon request, if the
administrative director determines the information is necessary to
verify that the plan is providing medical treatment to injured
employees consistent with the intent of this article.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
subdivision (d) of Section 10133 of the Insurance Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (e) If the health care organization is a workers' compensation
insurer, third-party administrator, or any other entity that the
administrative director determines meets the requirements of Section
4600.6, the administrative director shall certify the organization to
provide health care pursuant to Section 4600.3 if the director finds
that it meets the following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records relating to provider accessibility,
peer review, utilization review, quality assurance, advertising,
disclosure, medical and financial audits, and grievance systems, upon
request, if the administrative director determines the information
is necessary to verify that the plan is providing medical treatment
to injured employees consistent with the intent of this article.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
subdivision (d) of Section 10133 of the Insurance Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (7) Complies with the following requirements:
   (A) An organization certified by the administrative director under
this subdivision may not provide or undertake to arrange for the
provision of health care to employees, or to pay for or to reimburse
any part of the cost of that health care in return for a prepaid or
periodic charge paid by or on behalf of those employees.
   (B) Every organization certified under this subdivision shall
operate on a fee-for-service basis.  As used in this section, fee for
service refers to the situation where the amount of reimbursement
paid by the employer to the organization or providers of health care
is determined by the amount and type of health care rendered by the
organization or provider of health care.
   (C) An organization certified under this subdivision is prohibited
from assuming risk.
   (f) (1) A workers' compensation health care provider organization
authorized by the Department of Corporations on December 31, 1997,
shall be eligible for certification as a health care organization
under subdivision (e).
   (2) An entity that had, on December 31, 1997, submitted an
application with the Commissioner of Corporations under Part 3.2
(commencing with Section 5150) shall be considered an applicant for
certification under subdivision (e) and shall be entitled to priority
in consideration of its application.  The Commissioner of
Corporations shall provide complete files for all pending
applications to the administrative director on or before January 31,
1998.
   (g) The provisions of this section shall not affect the
confidentiality or admission in evidence of a claimant's medical
treatment records.
   (h) Charges for services arranged for or provided by health care
service plans certified by this section and that are paid on a
per-enrollee-periodic-charge basis shall not be subject to the
schedules adopted by the administrative director pursuant to Section
5307.1.
   (i) Nothing in this section shall be construed to expand or
constrict any requirements imposed by law on a health care service
plan or insurer when operating as other than a health care
organization pursuant to this section.
   (j) In consultation with interested parties, including the
Department of Corporations and the Department of Insurance, the
administrative director shall adopt rules necessary to carry out this
section.
   (k) The administrative director shall refuse to certify or may
revoke or suspend the certification of any health care organization
under this section if the director finds that:
   (1) The plan for providing medical treatment fails to meet the
requirements of this section.
   (2) A health care service plan licensed by the Department of
Managed Health Care, a workers' compensation health care provider
organization authorized by the Department of Corporations, or a
carrier licensed by the Department of Insurance is not in good
standing with its licensing agency.
   (3) Services under the plan are not being provided in accordance
with the terms of a certified plan.
   (l) (1) When an injured employee requests chiropractic treatment
for work-related injuries, the health care organization shall provide
the injured worker with access to the services of a chiropractor
pursuant to guidelines for chiropractic care established by paragraph
(2).  Within five working days of the employee's request to see a
chiropractor, the health care organization and any person or entity
who directs the kind or manner of health care services for the plan
shall refer an injured employee to an affiliated chiropractor for
work-related injuries that are within the guidelines for chiropractic
care established by paragraph (2).  Chiropractic care rendered in
accordance with guidelines for chiropractic care established pursuant
to paragraph (2) shall be provided by duly licensed chiropractors
affiliated with the plan.
   (2) The health care organization shall establish guidelines for
chiropractic care in consultation with affiliated chiropractors who
are participants in the health care organization's utilization review
process for chiropractic care, which may include qualified medical
evaluators knowledgeable in the treatment of chiropractic conditions.
  The guidelines for chiropractic care shall, at a minimum,
explicitly require the referral of any injured employee who so
requests to an affiliated chiropractor for the evaluation or
treatment, or both, of neuromusculoskeletal conditions.
   (3) Whenever a dispute concerning the appropriateness or necessity
of chiropractic care for work-related injuries arises, the dispute
shall be resolved by the health care organization's utilization
review process for chiropractic care in accordance with the health
care organization's guidelines for chiropractic care established by
paragraph (2).
   Chiropractic utilization review for work-related injuries shall be
conducted in accordance with the health care organization's approved
quality assurance standards and utilization review process for
chiropractic care.  Chiropractors affiliated with the plan shall have
access to the health care organization's provider appeals process
and, in the case of chiropractic care for work-related injuries, the
review shall include review by a chiropractor affiliated with the
health care organization, as determined by the health care
organization.
   (4) The health care organization shall inform employees of the
procedures for processing and resolving grievances, including those
related to chiropractic care, including the location and telephone
number where grievances may be submitted.
   (5) All guidelines for chiropractic care and utilization review
shall be consistent with the standards of this code that require care
to cure or relieve the effects of the industrial injury.
   (m) Individually identifiable medical information on patients
submitted to the division shall not be subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code).
   (n) (1) When an injured employee requests acupuncture treatment
for work-related injuries, the health care organization shall provide
the injured worker with access to the services of an acupuncturist
pursuant to guidelines for acupuncture care established by paragraph
(2).  Within five working days of the employee's request to see an
acupuncturist, the health care organization and any person or entity
who directs the kind or manner of health care services for the plan
shall refer an injured employee to an affiliated acupuncturist for
work-related injuries that are within the guidelines for acupuncture
care established by paragraph (2).  Acupuncture care rendered in
accordance with guidelines for acupuncture care established pursuant
to paragraph (2) shall be provided by duly licensed acupuncturists
affiliated with the plan.
   (2) The health care organization shall establish guidelines for
acupuncture care in consultation with affiliated acupuncturists who
are participants in the health care organization's utilization review
process for acupuncture care, which may include qualified medical
evaluators.  The guidelines for acupuncture care shall, at a minimum,
explicitly require the referral of any injured employee who so
requests to an affiliated acupuncturist for the evaluation or
treatment, or both, of neuromusculoskeletal conditions.
   (3) Whenever a dispute concerning the appropriateness or necessity
of acupuncture care for work-related injuries arises, the dispute
shall be resolved by the health care organization's utilization
review process for acupuncture care in accordance with the health
care organization's guidelines for acupuncture care established by
paragraph (2).
   Acupuncture utilization review for work-related injuries shall be
conducted in accordance with the health care organization's approved
quality assurance standards and utilization review process for
acupuncture care.  Acupuncturists affiliated with the plan shall have
access to the health care organization's provider appeals process
and, in the case of acupuncture care for work-related injuries, the
review shall include review by an acupuncturist affiliated with the
health care organization, as determined by the health care
organization.
   (4) The health care organization shall inform employees of the
procedures for processing and resolving grievances, including those
related to acupuncture care, including the location and telephone
number where grievances may be submitted.
   (5) All guidelines for acupuncture care and utilization review
shall be consistent with the standards of this code that require care
to cure or relieve the effects of the industrial injury.
  SEC. 78.  Section 830.3 of the Penal Code is amended to read:
   830.3.  The following persons are peace officers whose authority
extends to any place in the state for the purpose of performing their
primary duty or when making an arrest pursuant to Section 836 of the
Penal Code as to any public offense with respect to which there is
immediate danger to person or property, or of the escape of the
perpetrator of that offense, or pursuant to Section 8597 or 8598 of
the Government Code.  These peace officers may carry firearms only if
authorized and under those terms and conditions as specified by
their employing agencies:
   (a) Persons employed by the Division of Investigation of the
Department of Consumer Affairs and investigators of the Medical Board
of California and the Board of Dental Examiners, who are designated
by the Director of Consumer Affairs, provided that the primary duty
of these peace officers shall be the enforcement of the law as that
duty is set forth in Section 160 of the Business and Professions
Code.  The Director of Consumer Affairs shall designate as peace
officers seven persons who shall at the time of their designation be
assigned to the investigations unit of the Board of Dental Examiners.

   (b) Voluntary fire wardens designated by the Director of Forestry
and Fire Protection pursuant to Section 4156 of the Public Resources
Code, provided that the primary duty of these peace officers shall be
the                                               enforcement of the
law as that duty is set forth in Section 4156 of that code.
   (c) Employees of the Department of Motor Vehicles designated in
Section 1655 of the Vehicle Code, provided that the primary duty of
these peace officers shall be the enforcement of the law as that duty
is set forth in Section 1655 of that code.
   (d) Investigators of the California Horse Racing Board designated
by the board, provided that the primary duty of these peace officers
shall be the enforcement of Chapter 4 (commencing with Section 19400)
of Division 8 of the Business and Professions Code and Chapter 10
(commencing with Section 330) of Title 9 of Part 1 of this code.
   (e) The State Fire Marshal and assistant or deputy state fire
marshals appointed pursuant to Section 13103 of the Health and Safety
Code, provided that the primary duty of these peace officers shall
be the enforcement of the law as that duty is set forth in Section
13104 of that code.
   (f) Inspectors of the food and drug section designated by the
chief pursuant to subdivision (a) of Section 106500 of the Health and
Safety Code, provided that the primary duty of these peace officers
shall be the enforcement of the law as that duty is set forth in
Section 106500 of that code.
   (g) All investigators of the Division of Labor Standards
Enforcement designated by the Labor Commissioner, provided that the
primary duty of these peace officers shall be the enforcement of the
law as prescribed in Section 95 of the Labor Code.
   (h) All investigators of the State Departments of Health Services,
Social Services, Mental Health, Developmental Services, and Alcohol
and Drug Programs, the Department of Toxic Substances Control, the
Office of Statewide Health Planning and Development, and the Public
Employees' Retirement System, provided that the primary duty of these
peace officers shall be the enforcement of the law relating to the
duties of his or her department, or office.  Notwithstanding any
other provision of law, investigators of the Public Employees'
Retirement System shall not carry firearms.
   (i) The Chief of the Bureau of Fraudulent Claims of the Department
of Insurance and those investigators designated by the chief,
provided that the primary duty of those investigators shall be the
enforcement of Section 550.
   (j) Employees of the Department of Housing and Community
Development designated under Section 18023 of the Health and Safety
Code, provided that the primary duty of these peace officers shall be
the enforcement of the law as that duty is set forth in Section
18023 of that code.
   (k) Investigators of the office of the Controller, provided that
the primary duty of these investigators shall be the enforcement of
the law relating to the duties of that office.  Notwithstanding any
other law, except as authorized by the Controller, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (l) Investigators of the Department of Corporations designated by
the Commissioner of Corporations, provided that the primary duty of
these investigators shall be the enforcement of the provisions of law
administered by the Department of Corporations.  Notwithstanding any
other provision of law, the peace officers designated pursuant to
this subdivision shall not carry firearms.
   (m) Persons employed by the Contractors' State License Board
designated by the Director of Consumer Affairs pursuant to Section
7011.5 of the Business and Professions Code, provided that the
primary duty of these persons shall be the enforcement of the law as
that duty is set forth in Section 7011.5, and in Chapter 9
(commencing with Section 7000) of Division 3, of that code.  The
Director of Consumer Affairs may designate as peace officers not more
than three persons who shall at the time of their designation be
assigned to the special investigations unit of the board.
Notwithstanding any other provision of law, the persons designated
pursuant to this subdivision shall not carry firearms.
   (n) The chief and coordinators of the Law Enforcement Division of
the Office of Emergency Services.
   (o) Investigators of the office of the Secretary of State
designated by the Secretary of State, provided that the primary duty
of these peace officers shall be the enforcement of the law as
prescribed in Chapter 3 (commencing with Section 8200) of Division 1
of Title 2 of, and Section 12172.5 of, the Government Code.
Notwithstanding any other provision of law, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (p) The Deputy Director for Security designated by Section 8880.38
of the Government Code, and all lottery security personnel assigned
to the California State Lottery and designated by the director,
provided that the primary duty of any of those peace officers shall
be the enforcement of the laws related to assuring the integrity,
honesty, and fairness of the operation and administration of the
California State Lottery.
   (q) Investigators employed by the Investigation Division of the
Employment Development Department designated by the director of the
department, provided that the primary duty of those peace officers
shall be the enforcement of the law as that duty is set forth in
Section 317 of the Unemployment Insurance Code.
   Notwithstanding any other provision of law, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (r) The chief and assistant chief of museum security and safety of
the California Science Center, as designated by the executive
director pursuant to Section 4108 of the Food and Agricultural Code,
provided that the primary duty of those peace officers shall be the
enforcement of the law as that duty is set forth in Section 4108 of
the Food and Agricultural Code.
   (s) Employees of the Franchise Tax Board designated by the board,
provided that the primary duty of these peace officers shall be the
enforcement of the law as set forth in Chapter 9 (commencing with
Section 19701) of Part 10.2 of Division 2 of the Revenue and Taxation
Code.
   (t) Notwithstanding any other provision of this section, a peace
officer authorized by this section shall not be authorized to carry
firearms by his or her employing agency until that agency has adopted
a policy on the use of deadly force by those peace officers, and
until those peace officers have been instructed in the employing
agency's policy on the use of deadly force.
   Every peace officer authorized pursuant to this section to carry
firearms by his or her employing agency shall qualify in the use of
the firearms at least every six months.
   (u) Investigators of the Department of Managed Health Care
designated by the Director of the Department of Managed Health Care,
provided that the primary duty of these investigators shall be the
enforcement of the provisions of laws administered by the Director of
the Department of Managed Health Care.  Notwithstanding any other
provision of law, the peace officers designated pursuant to this
subdivision shall not carry firearms.
  SEC. 79.  Section 5777 of the Welfare and Institutions Code is
amended to read:
   5777.  (a) (1) Except as otherwise specified in this part, a
contract entered into pursuant to this part shall include a provision
that the mental health plan contractor shall bear the financial risk
for the cost of providing medically necessary mental health services
to Medi-Cal beneficiaries irrespective of whether the cost of those
services exceeds the payment set forth in the contract.  If the
expenditures for services do not exceed the payment set forth in the
contract, the mental health plan contractor shall report the
unexpended amount to the department, but shall not be required to
return the excess to the department.
   (2) If the mental health plan is not the county's, the mental
health plan may not transfer the obligation for any mental health
services to Medi-Cal beneficiaries to the county.  The mental health
plan may purchase services from the county.  The mental health plan
shall establish mutually agreed-upon protocols with the county that
clearly establish conditions under which beneficiaries may obtain
non-Medi-Cal reimbursable services from the county.  Additionally,
the plan shall establish mutually agreed-upon protocols with the
county for the conditions of transfer of beneficiaries who have lost
Medi-Cal eligibility to the county for care under Part 2 (commencing
with Section 5600), Part 3 (commencing with Section 5800), and Part 4
(commencing with Section 5850).
   (3) The mental health plan shall be financially responsible for
ensuring access and a minimum required scope of benefits, consistent
with state and federal requirements, to the services to the Medi-Cal
beneficiaries of that county regardless of where the beneficiary
resides.  The department shall require that the definition of medical
necessity used, and the minimum scope of benefits offered, by each
mental health contractor be the same, except to the extent that any
variations receive prior federal approval and are consistent with
state and federal statutes and regulation.
   (b) Any contract entered into pursuant to this part may be renewed
if the plan continues to meet the requirements of this part,
regulations promulgated pursuant thereto, and the terms and
conditions of the contract.  Contract renewal shall be on an annual
basis.  Failure to meet these requirements shall be cause for
nonrenewal of the contract.  The department may base the decision to
renew on timely completion of a mutually agreed upon plan of
correction of any deficiencies, submissions of required information
in a timely manner, or other conditions of the contract.
   (c) (1) The obligations of the mental health plan shall be changed
only by contract or contract amendment.
   (2) A change may be made during a contract term or at the time of
contract renewal, where there is a change in obligations required by
federal or state law or when required by a change in the
interpretation or implementation of any law or regulation.  To the
extent permitted by federal law and except as provided under
subdivision (r) of Section 5778, if any change in obligations occurs
that affects the cost to the mental health plan of performing under
the terms of its contract, the department may reopen contracts to
negotiate the state General Fund allocation to the mental health plan
under Section 5778, if the mental health plan is reimbursed through
a fee-for-service payment system, or the capitation rate to the
mental health plan under Section 5779, if the mental health plan is
reimbursed through a capitated rate payment system.  During the time
period required to redetermine the allocation or rate, payment to the
mental health plan of the allocation or rate in effect at the time
the change occurred shall be considered interim payments and shall be
subject to increase or decrease, as the case may be, effective as of
the date on which the change is effective.
   (3) To the extent permitted by federal law, either the department
or the mental health plan may request that contract negotiations be
reopened during the course of a contract due to substantial changes
in the cost of covered benefits that result from an unanticipated
event.
   (d) The department shall immediately terminate a contract when the
director finds that there is an immediate threat to the health and
safety of Medi-Cal beneficiaries.  Termination of the contract for
other reasons shall be subject to reasonable notice of the department'
s intent to take that action and notification of affected
beneficiaries.  The plan may request a public hearing by the Office
of Administrative Hearings.
   (e) A plan may terminate its contract in accordance with the
provisions in the contract.  The plan shall provide written notice to
the department at least 180 days prior to the termination or
nonrenewal of the contract.
   (f) Upon the request of the Director of Mental Health, the
Director of the Department of Managed Health Care may exempt a mental
health plan contractor or a capitated rate contract from the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code).  These exemptions may be subject to conditions the director
deems appropriate.  Nothing in this part shall be construed to impair
or diminish the authority of the Director of the Department of
Managed Health Care under the Knox-Keene Health Care Service Plan Act
of 1975, nor shall anything in this part be construed to reduce or
otherwise limit the obligation of a mental health plan contractor
licensed as a health care service plan to comply with the
requirements of the Knox-Keene Health Care Service Plan Act of 1975,
and the rules of the Director of the Department of Managed Health
Care promulgated thereunder.  The Director of Mental Health, in
consultation with the Director of the Department of Managed Health
Care, shall analyze the appropriateness of licensure or application
of applicable standards of the Knox-Keene Health Care Service Plan
Act of 1975.
   (g) The department, pursuant to an agreement with the State
Department of Health Services, shall provide oversight to the mental
health plans to ensure quality, access, and cost efficiency.  At a
minimum, the department shall, through a method independent of any
agency of the mental health plan contractor, monitor the level and
quality of services provided, expenditures pursuant to the contract,
and conformity with federal and state law.
   (h) County employees implementing or administering a mental health
plan act in a discretionary capacity when they determine whether or
not to admit a person for care or to provide any level of care
pursuant to this part.
   (i) If a county chooses to discontinue operations as the local
mental health plan, the new plan shall give reasonable consideration
to affiliation with nonprofit community mental health agencies that
were under contract with the county and that meet the mental health
plan's quality and cost efficiency standards.
   (j) Nothing in this part shall be construed to modify, alter, or
increase the obligations of counties as otherwise limited and defined
in Chapter 3 (commencing with Section 5700) of Part 2.  The county's
maximum obligation for services to persons not eligible for Medi-Cal
shall be no more than the amount of funds remaining in the mental
health subaccount pursuant to Sections 17600, 17601, 17604, 17605,
17606, and 17609 after fulfilling the Medi-Cal contract obligations.

  SEC. 80.  Section 9541 of the Welfare and Institutions Code is
amended to read:
   9541.  (a) The Legislature finds and declares that the purpose of
the Health Insurance Counseling and Advocacy Program is to provide
Medicare beneficiaries and those imminent of becoming eligible for
Medicare with counseling and advocacy as to Medicare, private health
insurance, and related health care coverage plans, on a statewide
basis, and preserving service integrity.
   (b) The department shall be responsible for, but not limited to,
doing both of the following:
   (1) To act as a clearinghouse for information and materials
relating to Medicare, managed care, health and long-term care related
life and disability insurance, and related health care coverage
plans.
   (2) To develop additional information and materials relating to
Medicare, managed care, and health and long-term care related life
and disability insurance, and related health care coverage plans, as
necessary.
   (c) Notwithstanding the terms and conditions of the contracts,
direct services contractors shall be responsible for, but not limited
to, all of the following:
   (1) Community education to the public on Medicare, long-term care
planning, private health and long-term care insurance, managed care,
and related health care coverage plans.
   (2) Counseling and informal advocacy with respect to Medicare,
long-term care planning, private health and long-term care insurance,
managed care, and related health care coverage plans.
   (3) Referral services for legal representation or legal
representation with respect to Medicare appeals, Medicare related
managed care appeals, and life and disability insurance problems.
Legal services provided under this program shall be subject to the
understanding that the legal representation and legal advocacy shall
not include the filing of lawsuits against private insurers or
managed health care plans.  In the event that legal services are
contracted for by the agency separately from counseling and education
services, a formal system of coordination and referral from
counseling services to legal services shall be established and
maintained.
   (4) Educational services supporting long-term care educational
activities aimed at the general public, employers, employee groups,
senior organizations, and other groups expressing interest in
long-term care planning issues.
   (5) Educational services emphasizing the importance of long-term
care planning, promotion of self-reliance and independence, and
options for long-term care.
   (6) To the extent possible, support additional emphasis on
community educational activities that would provide for announcements
on television and in other media describing the limited nature of
Medicare, the need for long-term care planning, the function of
long-term care insurance, and the availability of counseling and
educational literature on those subjects.
   (7) Recruitment, training, coordination, and registration, with
the department, of health insurance counselors, including a large
contingent of volunteer counselors designed to expand services as
broadly as possible.
   (8) A systematic means of capturing and reporting all required
community-based services program data, as specified by the
department.
   (d) Participants who volunteer their time for the health insurance
counseling and advocacy program may be reimbursed for expenses
incurred, as specified by the department.
   (e) The department, the Department of Managed Health Care, and the
Department of Insurance shall jointly develop interagency procedures
for referring and investigating suspected instances of
misrepresentation in advertising or sales of services provided by
Medicare, managed health care plans, and life and disability insurers
and agents.
   (f) (1) No health insurance counselor shall provide counseling
services under this chapter, unless he or she is registered with the
department.
   (2) No registered volunteer health insurance counselor shall be
liable for his or her negligent act or omission in providing
counseling services under this chapter.  No immunity shall apply to
health insurance counselors for any grossly negligent act or omission
or intentional misconduct.
   (3) No registered volunteer health insurance counselor shall be
liable to any insurance agent, broker, employee thereof, or similarly
situated person, for defamation, trade libel, slander, or similar
actions based on statements made by the counselor when providing
counseling, unless a statement was made with actual malice.
   (4) Prior to providing any counseling services, health insurance
counselors shall disclose, in writing, to recipients of counseling
services pursuant to this chapter that the counselors are acting in
good faith to provide information about health insurance policies and
benefits on a volunteer basis, but that the information shall not be
construed to be legal advice, and that the counselors are,
generally, not liable unless their acts and omissions are grossly
negligent or there is intentional misconduct on the part of the
counselor.
   (5) The department shall not register any applicant under this
section unless he or she has completed satisfactorily training which
is approved by the department, and which shall consist of not less
than 24 hours of training that shall include, but is not limited to,
all of the following subjects:
   (A) Medicare.
   (B) Life and disability insurance.
   (C) Managed care.
   (D) Retirement benefits and principles of long-term care planning.

   (E) Counseling skills.
   (F) Any other subject or subjects determined by the department to
be necessary to the provision of counseling services under this
chapter.
   (6) The department shall not register any applicant under this
section unless he or she has completed all training requirements and
has served an internship of cocounseling of not less than 10 hours
with an experienced counselor and is determined by the local program
manager to be capable of discharging the responsibilities of a
counselor.  An applicant shall sign a conflict of interest and
confidentiality agreement, as specified by the department.
   (7) A counselor shall not continue to provide health insurance
counseling services unless he or she has received continuing
education and training, in a manner prescribed by the department, on
Medicare, managed care, life and disability insurance, and other
subjects during each calendar year.
  SEC. 81.  Section 14087.32 of the Welfare and Institutions Code is
amended to read:
   14087.32.  (a) Commencing on the date the authority first receives
Medi-Cal capitated payments for the provision of health care
services to Medi-Cal beneficiaries and until a commission established
pursuant to Section 14087.31 is in compliance with all the
requirements regarding tangible net equity applicable to a health
care service plan licensed under Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code, all of the
following shall apply:
   (1) The commission may select and design its automated management
information system.  The department, in cooperation with the
commission, prior to making capitated payments, shall test the system
to ensure that the system is capable of producing detailed,
accurate, and timely financial information on the financial condition
of the commission, and any other information that is generally
required by the department in its contracts with other health care
service plans.
   (2) In addition to the reports required by the Department of
Managed Health Care under Chapter 2.2 (commencing with Section 1340)
of Division 2 of the Health and Safety Code, and the rules of the
Director of the Department of Managed Health Care promulgated
thereunder, a commission established pursuant to Section 14087.31
shall provide, on a monthly basis, to the department, the Department
of Managed Health Care, and the members of the commission, a copy of
the automated report described in paragraph (1) and a projection of
assets and liabilities, including those that have been incurred but
not reported, with an explanation of material increases or decreases
in current or projected assets of liabilities.  The explanation of
increases and decreases in assets or liabilities shall be provided,
upon request, to a hospital, independent physicians' practice
association or community clinic, which has contracted with the
authority to provide health care services.
   (3) In addition to the reporting and notification obligations the
commission has under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, the chief executive officer
or director of the commission shall immediately notify the
department, the Department of Managed Health Care, and the members of
the commission, in writing, of any fact or facts that, in the chief
executive officer's or director's reasonable and prudent judgment, is
likely to result in the commission being unable to meet its
financial obligations to health care providers or to other parties.
The written notice shall describe the fact or facts, the anticipated
fiscal consequences, and the actions which will be taken to address
the anticipated consequences.
   (4) The Department of Managed Health Care shall not, in any way,
waive or vary, nor shall the department request the Department of
Managed Health Care to waive or vary, the tangible net equity
requirements for a commission under Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code, after
three years from the date of commencement of capitated payments to
the commission.  Until the commission is in compliance with all of
the tangible net equity requirements under Chapter 2.2 (commencing
with Section 1340) of Division 2 of the Health and Safety Code, and
the rules of the Director of the Department of Managed Health Care
adopted thereunder, the commission shall develop a stop-loss program
appropriate to the risks of the commission, which program shall be
satisfactory to both department and the Department of Managed Health
Care.
   (5) (A) If the commission votes to file a petition of bankruptcy,
or the county board of supervisors notifies the department of its
intent to terminate the commission, the department shall immediately
transfer the authority's Medi-Cal beneficiaries as follows:
   (i) To other managed care contractors, when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (ii) To the extent that other managed care contractors are
unavailable or the department determines that it is otherwise in the
best interest of any particular beneficiary, to a fee-for-service
reimbursement system pending the availability of managed care
contractors provided those contractors are able to demonstrate that
they can absorb the increased enrollment without detriment to the
provision of health care services to their existing enrollees, or the
department determines that providing care to any particular
beneficiary pursuant to a fee-for-service reimbursement system is no
longer necessary to protect the continuity of care or other interests
of the beneficiary.
   (B) Beneficiary eligibility for Medi-Cal shall not be affected by
actions taken pursuant to subparagraph (A).
   (C) Beneficiaries who have been or who are scheduled to be
transferred to a fee-for-service reimbursement system or managed care
contractor may make a choice to be enrolled in another managed care
system, if one is available, in full compliance with the federal
freedom-of-choice requirements.
   (6) (A) A commission established pursuant to Section 14087.31
shall submit to a review of financial records when the department
determines, based on data reported by the commission or otherwise,
that the commission will not be able to meet its financial
obligations to health care providers contracting with the commission.
  Where the review of financial records determines that the
commission will not be able to meet its financial obligations to
contracting health care
providers for the provision of health care services, the Director of
Health Services shall immediately terminate the contract between the
commission and the state, and immediately transfer the commission's
Medi-Cal beneficiaries in accordance with paragraph (5) in order to
ensure uninterrupted provision of health care services to the
beneficiaries and to minimize financial disruption to providers.
   (B) The action of the Director of Health Services pursuant to
subparagraph (A) shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.
   (C) Beneficiaries who have been or who are scheduled to be
transferred under paragraph (5) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a matter that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the commission shall authorize and permit
the department to administer the number of covered Medi-Cal
enrollments in such a manner that the commission's provider network
and administrative structure are able to provide appropriate and
timely services to beneficiaries and to participating providers.
   (8) In the event a commission is terminated, files for bankruptcy,
or otherwise no longer functions for the purpose for which it was
established, the county shall, with respect to compensation for
provision of health care services to beneficiaries, occupy no greater
or lesser status than any other health care provider in the
disbursement of assets of the commission.
   (9) Nothing in this section shall be construed to impair or
diminish the authority of the Director of the Department Managed
Health Care under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, nor shall anything in the
section be construed to reduce or otherwise limit the obligation of a
commission licensed as a health care service plan to comply with the
requirements of Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code and the rules of the
Director of the Department of Managed Health Care adopted thereunder.

   (10) Except as expressly provided by other provisions of this
section, all exemptions and exclusions from disclosure as public
records pursuant to the Public Records Act (Chapter 5 (commencing
with Section 65250) of Division 7 of Title 1 of the Government Code),
including but not limited to, those pertaining to trade secrets and
information withheld in the public interest, shall be fully
applicable for all state agencies and local agencies with respect to
all writings that the commission is required to prepare, produce or
submit pursuant to this section.
  SEC. 82.  Section 14087.36 of the Welfare and Institutions Code is
amended to read:
   14087.36.  (a) The following definitions shall apply for purposes
of this section:
   (1) "County" means the City and County of San Francisco.
   (2) "Board" means the Board of Supervisors of the City and County
of San Francisco.
   (3) "Department" means the State Department of Health Services.
   (4) "Governing body" means the governing body of the health
authority.
   (5) "Health authority" means the separate public agency
established by the board of supervisors to operate a health care
system in the county and to engage in the other activities authorized
by this section.
   (b) The Legislature finds and declares that it is necessary that a
health authority be established in the county to arrange for the
provision of health care services in order to meet the problems of
the delivery of publicly assisted medical care in the county, to
enter into a contract with the department under Article 2.97
(commencing with Section 14093), or to contract with a health care
service plan on terms and conditions acceptable to the department,
and to demonstrate ways of promoting quality care and cost
efficiency.
   (c) The county may, by resolution or ordinance, establish a health
authority to act as and be the local initiative component of the
Medi-Cal state plan pursuant to regulations adopted by the
department.  If the board elects to establish a health authority, all
rights, powers, duties, privileges, and immunities vested in a
county under Article 2.8 (commencing with Section 14087.5) and
Article 2.97 (commencing with Section 14093) shall be vested in the
health authority.  The health authority shall have all power
necessary and appropriate to operate programs involving health care
services, including, but not limited to, the power to acquire,
possess, and dispose of real or personal property, to employ
personnel and contract for services required to meet its obligations,
to sue or be sued, and to take all actions and engage in all public
and private business activities, subject to any applicable licensure,
as permitted a health care service plan pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code.
   (d) (1) (A) The health authority shall be considered a public
entity separate and distinct from the county and shall file the
statement required by Section 53051 of the Government Code.  The
health authority shall have primary responsibility to provide the
defense and indemnification required under Division 3.6 (commencing
with Section 810) of Title 1 of the Government Code for employees of
the health authority who are employees of the county.  The health
authority shall provide insurance under terms and conditions required
by the county in order to satisfy its obligations under this
section.
   (B) For purposes of this paragraph, "employee" shall have the same
meaning as set forth in Section 810.2 of the Government Code.
   (2) The health authority shall not be considered to be an agency,
division, department, or instrumentality of the county and shall not
be subject to the personnel, procurement, or other operational rules
of the county.
   (3) Notwithstanding any other provision of law, any obligations of
the health authority, statutory, contractual, or otherwise, shall be
the obligations solely of the health authority and shall not be the
obligations of the county, unless expressly provided for in a
contract between the authority and the county, nor of the state.
   (4) Except as agreed to by contract with the county, no liability
of the health authority shall become an obligation of the county upon
either termination of the health authority or the liquidation or
disposition of the health authority's remaining assets.
   (e) (1) To the full extent permitted by federal law, the
department and the health authority may enter into contracts to
provide or arrange for health care services for any or all persons
who are eligible to receive benefits under the Medi-Cal program.  The
contracts may be on an exclusive or nonexclusive basis, and shall
include payment provisions on any basis negotiated between the
department and the health authority.  The health authority may also
enter into contracts for the provision of health care services to
individuals including, but not limited to, those covered under
Subchapter 18 (commencing with Section 1395) of Chapter 7 of Title 42
of the United States Code, individuals employed by public agencies
and private businesses, and uninsured or indigent individuals.
   (2) Notwithstanding paragraph (1), or subdivision (f), the health
authority may not operate health plans or programs for individuals
covered under Subchapter XVIII (commencing with Section 1395) of
Chapter 7 of Title 42 of the United States Code, or for private
businesses, until the health authority is in full compliance with all
of the requirements of the Knox-Keene Health Care Service Plan Act
of 1975 under Chapter 2.2 (commencing with Section 1340) of Division
2 of the Health and Safety Code, including tangible net equity
requirements applicable to a licensed health care service plan.  This
limitation shall not preclude the health authority from enrolling
persons pursuant to the county's obligations under Section 17000, or
from enrolling county employees.
   (f) The board of supervisors may transfer responsibility for
administration of county-provided health care services to the health
authority for the purpose of service of populations including
uninsured and indigent persons, subject to the provisions of any
ordinances or resolutions passed by the county board of supervisors.
The transfer of administrative responsibility for those health care
services shall not relieve the county of its responsibility for
indigent care pursuant to Section 17000.  The health authority may
also enter into contracts for the provision of health care services
to individuals including, but not limited to, those covered under
Subchapter 18 (commencing with Section 1395) of Chapter 7 of Title 42
of the United States Code, and individuals employed by public
agencies and private businesses.
   (g) Upon creation, the health authority may borrow from the county
and the county may lend the authority funds, or issue revenue
anticipation notes to obtain those funds necessary to commence
operations or perform the activities of the health authority.
Notwithstanding any other provision of law, both the county and the
health authority shall be eligible to receive funding under
subdivision (p) of Section 14163.
   (h) The county may terminate the health authority, but only by an
ordinance approved by a two-thirds affirmative vote of the full
board.
   (i) Prior to the termination of the health authority, the county
shall notify the department of its intent to terminate the health
authority.  The department shall conduct an audit of the health
authority's records within 30 days of notification to determine the
liabilities and assets of the health authority.  The department shall
report its findings to the county and to the Department of Managed
Health Care within 10 days of completion of the audit.  The county
shall prepare a plan to liquidate or otherwise dispose of the assets
of the health authority and to pay the liabilities of the health
authority to the extent of the health authority's assets, and present
the plan to the department and the Department of Managed Health Care
within 30 days upon receipt of these findings.
   (j) Any assets of the health authority derived from the contract
entered into between the state and the authority pursuant to Article
2.97 (commencing with Section 14093), after payment of the
liabilities of the health authority, shall be disposed of pursuant to
the contract.
   (k) (1) The governing body shall consist of 18 voting members, 14
of whom shall be appointed by resolution or ordinance of the board as
follows:
   (A) One member shall be a member of the board or any other person
designated by the board.
   (B) One member shall be a person who is employed in the senior
management of a hospital not operated by the county or the University
of California and who is nominated by the San Francisco Section of
the Westbay Hospital Conference or any successor organization, or if
no such successor organization, a person who shall be nominated by
the Hospital Council of Northern and Central California.
   (C) Two members, one of whom shall be a person employed in the
senior management of San Francisco General Hospital and one of whom
shall be a person employed in the senior management of St. Luke's
Hospital (San Francisco).  If San Francisco General Hospital or St.
Luke's Hospital, at the end of the term of the person appointed from
its senior management, is not designated as a disproportionate share
hospital, and if the governing body, after providing an opportunity
for comment by the Westbay Hospital Conference, or any successor
organization, determines that the hospital no longer serves an
equivalent patient population, the governing body may, by a
two-thirds vote of the full governing body, select an alternative
hospital to nominate a person employed in its senior management to
serve on the governing body.  Alternatively, the governing body may
approve a reduction in the number of positions on the governing body
as set forth in subdivision (p).
   (D) Two members shall be employees in the senior management of
either private nonprofit community clinics or a community clinic
consortium, nominated by the San Francisco Community Clinic
Consortium, or any successor organization.
   (E) Two members shall be physicians, nominated by the San
Francisco Medical Society, or any successor organization.
   (F) One member shall be nominated by the San Francisco Labor
Council, or any successor organization.
   (G) Two members shall be persons nominated by the beneficiary
committee of the health authority, at least one of whom shall, at the
time of appointment and during the person's term, be a Medi-Cal
beneficiary.
   (H) Two members shall be persons knowledgeable in matters relating
to either traditional safety net providers, health care
organizations, the Medi-Cal program, or the activities of the health
authority, nominated by the program committee of the health
authority.
   (I) One member shall be a person nominated by the San Francisco
Pharmacy Leadership Group, or any successor organization.
   (2) One member, selected to fulfill the appointments specified in
subparagraph (A), (G), or (H) shall, in addition to representing his
or her specified organization or employer, represent the discipline
of nursing, and shall possess or be qualified to possess a registered
nursing license.
   (3) The initial members appointed by the board under the
subdivision shall be, to the extent those individuals meet the
qualifications set forth in this subdivision and are willing to
serve, those persons who are members of the steering committee
created by the county to develop the local initiative component of
the Medi-Cal state plan in San Francisco.  Following the initial
staggering of terms, each of those members shall be appointed to a
term of three years, except the member appointed pursuant to
subparagraph (A) of paragraph (1), who shall serve at the pleasure of
the board.  At the first meeting of the governing body, the members
appointed pursuant to this subdivision shall draw lots to determine
seven members whose initial terms shall be for two years.  Each
member shall remain in office at the conclusion of that member's term
until a successor member has been nominated and appointed.
   (l) In addition to the requirements of subdivision (k), one member
of the governing body shall be appointed by the Mayor of the City of
San Francisco to serve at the pleasure of the mayor, one member
shall be the county's director of public health or designee, who
shall serve at the pleasure of that director, one member shall be the
Chancellor of the University of California at San Francisco or his
or her designee, who shall serve at the pleasure of the chancellor,
and one member shall be the county director of mental health or his
or her designee, who shall serve at the pleasure of that director.
   (m) There shall be one nonvoting member of the governing body who
shall be appointed by, and serve at the pleasure of, the health
commission of the county.
   (n) Each person appointed to the governing body shall, throughout
the member's term, either be a resident of the county or be employed
within the geographic boundaries of the county.
   (o) (1) The composition of the governing body and nomination
process for appointment of its members shall be subject to alteration
upon a two-thirds vote of the full membership of the governing body.
  This action shall be concurred in by a resolution or ordinance of
the county.
   (2) Notwithstanding paragraph (1), no alteration described in that
paragraph shall cause the removal of a member prior to the
expiration of that member's term.
   (p) A majority of the members of the governing body shall
constitute a quorum for the transaction of business, and all official
acts of the governing body shall require the affirmative vote of a
majority of the members present and voting.  However, no official
shall be approved with less than the affirmative vote of six members
of the governing body, unless the number of members prohibited from
voting because of conflicts of interest precludes adequate
participation in the vote.  The governing body may, by a two-thirds
vote adopt, amend, or repeal rules and procedures for the governing
body.  Those rules and procedures may require that certain decisions
be made by a vote that is greater than a majority vote.
   (q) For purposes of Section 87103 of the Government Code, members
appointed pursuant to subparagraphs (B) to (E), inclusive, of
paragraph (1) of subdivision (k) represent, and are appointed to
represent, respectively, the hospitals, private nonprofit community
clinics, and physicians that contract with the health authority, or
the health care service plan with which the health authority
contracts, to provide health care services to the enrollees of the
health authority or the health care service plan.  Members appointed
pursuant to subparagraphs (F) and (G) of paragraph (1) of subdivision
(k) represent and are appointed to represent, respectively, the
health care workers and enrollees served by the health authority or
its contracted health care service plan, and traditional safety net
and ancillary providers and other organizations concerned with the
activities of the health authority.
   (r) A member of the governing body may be removed from office by
the board by resolution or ordinance, only upon the recommendation of
the health authority, and for the following reasons:
   (1) Failure to retain the qualifications for appointment specified
in subdivisions (k) and (n).
   (2) Death or a disability that substantially interferes with the
member's ability to carry out the duties of office.
   (3) Conviction of any felony or a crime involving corruption.
   (4) Failure of the member to discharge legal obligations as a
member of a public agency.
   (5) Substantial failure to perform the duties of office,
including, but not limited to, unreasonable absence from meetings.
The failure to attend three meetings in a row of the governing body,
or a majority of the meetings in the most recent calendar year, may
be deemed to be unreasonable absence.
   (s) Any vacancy on the governing body, however created, shall be
filled for the unexpired term by the board by resolution or
ordinance.  Each vacancy shall be filled by an individual having the
qualifications of his or her predecessor, nominated as set forth in
subdivision (k).
   (t) The chair of the authority shall be selected by, and serve at
the pleasure of, the governing body.
   (u) The health authority shall establish all of the following:
   (1) A beneficiary committee to advise the health authority on
issues of concern to the recipients of services.
   (2) A program committee to advise the health authority on matters
relating to traditional safety net providers, ancillary providers,
and other organizations concerned with the activities of the health
authority.
   (3) Any other committees determined to be advisable by the health
authority.
   (v) (1) Notwithstanding any provision of state or local law,
including, but not limited to, the county charter, a member of the
health authority shall not be deemed to be interested in a contract
entered into by the authority within the meaning of Article 4
(commencing with Section 1090) of Chapter 1 of Division 4 of Title 1
of the Government Code, or within the meaning of conflict-of-interest
restrictions in the county charter, if all of the following apply:
   (A) The member does not influence or attempt to influence the
health authority or another member of the health authority to enter
into the contract in which the member is interested.
   (B) The member discloses the interest to the health authority and
abstains from voting on the contract.
   (C) The health authority notes the member's disclosure and
abstention in its official records and authorizes the contract in
good faith by a vote of its membership sufficient for the purpose
without counting the vote of the interested member.
   (D) The member has an interest in or was appointed to represent
the interests of physicians, health care practitioners, hospitals,
pharmacies, or other health care organizations.
   (E) The contract authorizes the member or the organization the
member has an interest in or represents to provide services to
beneficiaries under the authority's program or administrative
services to the authority.
   (2) In addition, no person serving as a member of the governing
body shall, by virtue of that membership, be deemed to be engaged in
activities that are inconsistent, incompatible, or in conflict with
their duties as an officer or employee of the county or the
University of California, or as an officer or an employee of any
private hospital, clinic, or other health care organization.  The
membership shall not be deemed to be in violation of Section 1126 of
the Government Code.
   (w) Notwithstanding any other provision of law, those records of
the health authority and of the health county that reveal the
authority's rates of payment for health care services or the health
authority's deliberative processes, discussions, communications, or
any other portion of the negotiations with providers of health care
services for rates of payment, or the health authority's peer review
proceedings shall not be required to be disclosed pursuant to the
California Public Records Act, Chapter 5 (commencing with Section
6250) of Division 7 of Title 1 of the Government Code, or any similar
local law requiring the disclosure of public records.  However,
three years after a contract or amendment to a contract is fully
executed, the portion of the contract or amendment containing the
rates of payment shall be open to inspection.
   (x) Notwithstanding any other provision of law, the health
authority may meet in closed session to consider and take action on
peer review proceedings and on matters pertaining to contracts and to
contract negotiations by the health authority's staff with providers
of health care services concerning all matters relating to rates of
payment.  However, a decision as to whether to enter into, amend the
services provisions of, or terminate, other than for reasons based
upon peer review, a contract with a provider of health care services,
shall be made in open session.
   (y) The health authority shall be deemed to be a public agency for
purposes of all grant programs and other funding and loan guarantee
programs.
   (z) Contracts under this article between the State Department of
Health Services and the health authority shall be on a nonbid basis
and shall be exempt from Chapter 2 (commencing with Section 10290) of
Part 2 of Division 2 of the Public Contract Code.
   (aa) (1) The county controller or his or her designee, at
intervals the county controller deems appropriate, shall conduct a
review of the fiscal condition of the health authority, shall report
the findings to the health authority and the board, and shall provide
a copy of the findings to any public agency upon request.
   (2) Upon the written request of the county controller, the health
authority shall provide full access to the county controller all
health authority records and documents as necessary to allow the
county controller or designee to perform the activities authorized by
this subdivision.
   (bb) A Medi-Cal recipient receiving services through the health
authority shall be deemed to be a subscriber or enrollee for purposes
of Section 1379 of the Health and Safety Code.
  SEC. 83.  Section 14087.37 of the Welfare and Institutions Code is
amended to read:
   14087.37.  Commencing on the date that a health authority
established pursuant to Section 14087.35 or 14087.36 first receives
Medi-Cal capitated payments for the provision of health care services
to Medi-Cal beneficiaries and until the time that the health
authority is in compliance with all the requirements regarding
tangible net equity applicable to a health care service plan licensed
under the Knox-Keene Health Care Service Plan Act of 1975, the
following provisions shall apply:
   (a) The health authority may select and design its automated
management information system, but the department, in cooperation
with the health authority, prior to making capitated payments shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the health authority and any other information
generally required by the department in its contracts with health
care service plans.
   (b) In addition to the reports required by the Department of
Managed Health Care under the Knox-Keene Health Care Service Plan Act
of 1975, and the rules of the Director of the Department of Managed
Health Care promulgated thereunder, the health authority shall
provide on a monthly basis to the department, the Department of
Managed Health Care, and the members of the health authority, a copy
of the automated report described in subdivision (a) and a projection
of assets and liabilities, including those that have been incurred
but not reported, with an explanation of material increases or
decreases in current or projected assets or liabilities.  The
explanation of increases and decreases in assets or liabilities shall
be provided, upon request, to a hospital, independent physicians'
practice association, or community clinic, that has contracted with
the health authority to provide health care services.
   (c) In addition to the reporting and notification obligations the
health authority has under the Knox-Keene Health Care Service Plan
Act of 1975, the chief executive officer or director of the health
authority shall immediately notify the department, the Department of
Managed Health Care, and the members of the health authority in
writing of any fact or facts that, in the chief executive officers'
or director's reasonable and prudent judgment, is likely to result in
the health authority being unable to meet its financial obligations
to health care providers or to other parties.  Written notice shall
describe the fact or facts, the anticipated fiscal consequences, and
the actions that will be taken to address the anticipated
consequences.

  (d) The Department of Managed Health Care shall not waive or vary,
nor shall the department request the Department of Managed Health
Care to waive or vary, the tangible net equity requirements for a
health authority under the Knox-Keene Health Care Service Plan Act of
1975 after three years from the date of commencement of capitated
payments to the health authority.  Until the time the health
authority is in compliance with all of the tangible net equity
requirements under the Knox-Keene Health Care Service Plan Act of
1975, and the rules of the Director of the Department of Managed
Health Care promulgated thereunder, the health authority shall
develop a stop-loss program appropriate to the risks of the health
authority.  The program shall be satisfactory to both the department
and the Department of Managed Health Care.
   (e) In the event that the health authority votes to file a
petition of bankruptcy, or the board of supervisors notifies the
department of its intent to terminate the health authority, the
department shall immediately convert the health authority's Medi-Cal
beneficiaries to either of the following:
   (1) To other managed care contractors when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (2) To the extent that other managed care contractors are
unavailable or the department determines that the action is otherwise
in the best interest of any particular beneficiary, to a
fee-for-service reimbursement system pending the availability of
managed care contractors, provided those contractors are able to
demonstrate that they can absorb the increased enrollment without
detriment to the provision of health care services to their existing
enrollees, or if the department determines that providing care to any
particular beneficiary pursuant to a fee-for-service reimbursement
system is no longer necessary to protect the continuity of care or
other interests of the beneficiary.  Beneficiary eligibility for
Medi-Cal shall not be affected by this action.  Beneficiaries who
have been or who are scheduled to be converted to a fee-for-service
reimbursement system or managed care contractor may make a choice to
be enrolled in another managed care system, if one is available, in
full compliance with the federal freedom-of-choice requirements.
   (f) The health authority shall submit to a review of financial
records when the department determines, based on data reported by the
health authority or otherwise, that the health authority will not be
able to meet its financial obligations to health care providers
contracting with the health authority.  Where the review of financial
records determines that the health authority will not be able to
meet its financial obligations to contracting health care providers
for the provision of health care services, the director shall
immediately terminate the contract between the health authority and
the state, and immediately convert the health authority Medi-Cal
beneficiaries in accordance with subdivision (e) in order to ensure
uninterrupted provision of health care services to the beneficiaries
and to minimize financial disruption to providers.  The action of the
director shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.  Beneficiaries who have been or who are scheduled to be
converted under subdivision (e) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (g) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the health authority shall authorize and
permit the department to administer the number of covered Medi-Cal
enrollments in such a manner that the health authority's provider
network and administrative structure are able to provide appropriate
and timely services to beneficiaries and to participating providers.

   (h) In the event a health authority is terminated, files for
bankruptcy, or otherwise no longer functions for the purpose for
which it was established, the county shall, with respect to
compensation for provision of health care services to beneficiaries,
occupy no greater or lesser status than any other health care
provider in the disbursement of assets of the health authority.
   (i) Nothing in this subdivision shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Health Care under the Knox-Keene Health Care Service Plan Act of
1975, nor shall anything in the section be construed to reduce or
otherwise limit the obligation of a health authority licensed as a
health care service plan to comply with the requirements of the
Knox-Keene Health Care Service Plan Act of 1975, and the rules of the
Director of the Department of Managed Health Care promulgated
thereunder.
  SEC. 84.  Section 14087.38 of the Welfare and Institutions Code is
amended to read:
   14087.38.  (a) (1) In counties selected by the director with the
concurrence of the county, a special county health authority may be
established in order to meet the problems of delivery of publicly
assisted medical care in each county, and to demonstrate ways of
promoting quality care and cost efficiency.  Nothing in this section
shall be construed to preclude the department from expanding Medi-Cal
managed care in ways other than those provided for in this section,
including, but not limited to, the establishment of a public benefit
corporation as set forth in Section 5110 of the Corporations Code.
   (2) For purposes of this section "health authority" means an
entity separate from the county that meets the requirements of state
and federal law and the quality, cost, and access criteria
established by the department.
   (b) The board of supervisors of a county described in subdivision
(a) may, by ordinance, establish a health authority to negotiate and
enter into contracts authorized by Section 14087.3, and to arrange
for the provision of health care services provided pursuant to this
chapter.  If the board of supervisors elects to enact this ordinance,
all rights, powers, duties, privileges, and immunities vested in a
county contracting with the department under this article shall be
vested in the health authority.  The health authority may also enter
into contracts for the provision of health care services to
individuals including, but not limited to, those covered under
Subchapter XVIII (commencing with Section 1395) of Chapter 7 of Title
42 of the United States Code, those entitled to coverage under other
publicly supported programs, those employed by public agencies or
private businesses, and uninsured or indigent individuals.
   (c) The enabling ordinance shall specify the membership of the
governing board of the health authority, the qualifications for
individual members, the manner of appointment, selection, or removal
of board members, and how long they shall serve, and any other
matters the board of supervisors deems necessary or convenient for
the conduct of the health authority's activities.  Members of the
governing board shall be appointed by the board of supervisors to
represent the interests of the county, the general public,
beneficiaries, physicians, hospitals, clinics, and other nonphysician
health care providers.  The health authority so established shall be
considered an entity separate from the county, shall file a
statement required by Section 53051 of the Government Code, and shall
have the power to acquire, possess, and dispose of real or personal
property, as necessary for the performance of its functions, to
employ personnel and contract for services required to meet its
obligations, and to sue or be sued.  Any obligations of a health
authority, statutory, contractual, or otherwise, shall be obligations
solely of the health authority and shall not be the obligations of
the county or of the state.
   (d) Upon creation, the health authority may borrow from the
county, and the county may lend the health authority funds or issue
revenue anticipation notes to obtain those funds necessary to
commence operations.
   (e) Notwithstanding any other provision of law, both the county
and the health authority shall be eligible to receive funding under
subdivision (p) of Section 14163, and the health authority shall be
considered to have satisfied the requirements of that subdivision.
   (f) The health authority shall be deemed to be a public agency
that is a unit of local government for purposes of all grant programs
and other funding and loan guarantee programs.
   (g) It is the intent of the Legislature that if a health authority
is formed pursuant to this section, the county shall, with respect
to its medical facilities and programs, occupy no greater or lesser
status than any other health care provider in negotiating with the
health authority for contracts to provide health care services.
Nothing in this subdivision shall be construed to interfere with or
limit the health authority in giving preference in negotiating to
disproportionate share hospitals or other providers of health care to
medically indigent or uninsured individuals.
   (h) Notwithstanding any other provisions of law, a member of the
governing board of the health authority shall not be deemed to be
interested in a contract entered into by the health authority within
the meaning of Article 4 (commencing with Section 1090) of Chapter 1
of Division 4 of Title 1 of the Government Code if all the following
apply:
   (1) The member was appointed to represent the interests of
physicians, health care practitioners, hospitals, pharmacies, or
other health care organizations, or beneficiaries.
   (2) The contract authorizes the member or the organization the
member represents to provide services to beneficiaries under the
health authority's programs.
   (3) The contract contains substantially the same terms and
conditions as contracts entered into with other individuals or
organizations that the member was appointed to represent.
   (4) The member does not influence or attempt to influence the
health authority or another member of the health authority to enter
into the contract in which the member is interested.
   (5) The member discloses the interest to the health authority and
abstains from voting on the contract.
   (6) The governing board notes the member's disclosure and
abstention in its official records and authorizes the contract in
good faith by a vote of its membership sufficient for the purpose
without counting the vote of the interested member.
   (i) All claims for money or damages against the health authority
shall be governed by Part 3 (commencing with Section 900) and Part 4
(commencing with Section 940) of Division 3.6 of Title 1 of the
Government Code, except as provided by other statutes or regulations
that expressly apply to the health authority.
   (j) The health authority, members of its governing board, and its
employees, are protected by the immunities applicable to public
entities and public employees governed by Part 1 (commencing with
Section 810) and Part 2 (commencing with Section 814) of Division 3.6
of Title 1 of the Government Code, except as provided by other
statutes or regulations that apply expressly to the health authority.

   (k) Notwithstanding any other provision of law, except as
otherwise provided in this section, a county shall not be liable for
any act or omission of the health authority.
   (l) The transfer of responsibility for health care services to the
health authority shall not relieve the county of its responsibility
for indigent care pursuant to Section 17000.
   (m) Notwithstanding any other provision of law, the governing
board of the health authority may meet in closed session to consider
and take action on matters pertaining to contracts, and to contract
negotiations by health authority staff with providers of health care
services concerning all matters related to rates of payment.
   (n) Notwithstanding Article 9 (commencing with Section 11120) of
Chapter 1 of Part 1 of Division 3 of Title 2 of, and Chapter 9
(commencing with Section 54950) of Part 1 of Division 2 of Title 5
of, the Government Code, or any other provision of law, any peer
review body, as defined in paragraph (1) of subdivision (a) of
Section 805 of the Business and Professions Code, formed pursuant to
the powers granted to the health authority authorized by this
section, may, at its discretion and without notice to the public,
meet in closed session, so long as the purpose of the meeting is the
peer review body's discharge of its responsibility to evaluate and
improve the quality of care rendered by health facilities and health
practitioners, pursuant to the powers granted to the health
authority.  Any such peer review body and its members shall receive,
to the fullest extent, all immunities, privileges, and protections
available to those peer review bodies, their individual members, and
persons or entities assisting in the peer review process, including
those afforded by Section 1157 of the Evidence Code and Section 1370
of the Health and Safety Code.
   (o) Notwithstanding any other provision of law, those records of
the health authority and of the county that reveal the health
authority's rates of payment for health care services or the health
authority's deliberative processes, discussions, communications, or
any other portion of the negotiations with providers of health care
services for rates of payment, shall not be required to be disclosed
pursuant to the California Public Records Act, Chapter 5 (commencing
with Section 6250) of Division 7 of Title 1 of the Government Code,
or any similar local law requiring the disclosure of public records.
However, three years after a contract or amendment to a contract is
fully executed, the portion of the contract or amendment containing
the rates of payment shall be open to inspection.
   (p) Notwithstanding the California Public Records Act, or Article
9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division
3 of Title 2 of, and Chapter 9 (commencing with Section 54950) of
Part 1 of Division 2 of Title 5 of, the Government Code, or any other
provision of state or local law requiring disclosure of public
records, those records of a peer review body, as defined in paragraph
(1) of subdivision (a) of Section 805 of the Business and
Professions Code, formed pursuant to the powers granted to the health
authority authorized by this section, shall not be required to be
disclosed.  The records and proceedings of any such peer review body
and its individual members shall receive, to the fullest extent, all
immunities, privileges, and protections available to those records
and proceedings, including those afforded by Section 1157 of the
Evidence Code and Section 1370 of the Health and Safety Code.
   (q) Except as expressly provided by other provisions of this
section, all exemptions and exclusions from disclosure as public
records pursuant to the California Public Records Act, including, but
not limited to, those pertaining to trade secrets and information
withheld in the public interest, shall be fully applicable for all
state agencies and local agencies with respect to all writings that
the health authority is required to prepare, produce, or submit
pursuant to this section.
   (r) (1) Any health authority formed pursuant to this section shall
obtain licensure as a health care service plan under the Knox-Keene
Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with
Section 1340) of Division 3 of the Health and Safety Code).
   (2) Notwithstanding subdivisions (b) and (s), a health authority
may not operate health plans or programs for individuals covered
under Subchapter XVIII (commencing with Section 1395) of Chapter 7 of
Title 42 of the United States Code, or for private businesses, until
the health authority is in full compliance with all of the
requirements of the Knox-Keene Health Care Service Plan Act of 1975,
including tangible net equity requirements applicable to a licensed
health care service plan.
   (s) Commencing on the date that the health authority first
receives Medi-Cal capitated payments for the provision of health care
services to Medi-Cal beneficiaries and until the time that the
health authority is in compliance with all the requirements regarding
tangible net equity applicable to a health care service plan
licensed under the Knox-Keene Health Care Service Plan Act of 1975,
the following provisions shall apply:
   (1) The health authority may select and design its automated
management information system, but the department, in cooperation
with the health authority, prior to making capitated payments shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the health authority and any other information
generally required by the department in its contracts with health
care service plans.
   (2) In addition to the reports required by the Department of
Managed Health Care under the Knox-Keene Health Care Service Plan Act
of 1975, and the rules of the Director of the Department of Managed
Health Care promulgated thereunder, the health authority shall
provide on a monthly basis to the department, the Department of
Managed Health Care, and the members of the health authority, a copy
of the automated report described in paragraph (1) and a projection
of assets and liabilities, including those that have been incurred
but not reported, with an explanation of material increases or
decreases in current or projected assets or liabilities.  The
explanation of increases and decreases in assets or liabilities shall
be provided, upon request, to a hospital, independent physicians'
practice association, or community clinic, that has contracted with
the health authority to provide health care services.
   (3) In addition to the reporting and notification obligations the
health authority has under the Knox-Keene Health Care Service Plan
Act of 1975, the chief executive officer or director of the health
authority shall immediately notify the department, the Department of
Managed Health Care, and the members of the governing board of the
health authority in writing of any fact or facts that, in the chief
executive officer's or director's reasonable and prudent judgment, is
likely to result in the health authority being unable to meet its
financial obligations to health care providers or to other parties.
Written notice shall describe the fact or facts, the anticipated
fiscal consequences, and the actions that will be taken to address
the anticipated consequences.
   (4) The Department of Managed Health Care shall not waive or vary,
nor shall the department request the Department of Managed Health
Care to waive or vary, the tangible net equity requirements for a
health authority under the Knox-Keene Health Care Service Plan Act of
1975 after three years from the date of commencement of capitated
payments to the health authority.  Until the time the health
authority is in compliance with all of the tangible net equity
requirements under the Knox-Keene Health Care Service Plan Act of
1975, and the rules of the Director of the Department of Managed
Health Care promulgated thereunder, the health authority shall
develop a stop-loss program appropriate to the risks of the health
authority.  The program shall be satisfactory to both the department
and the Department of Managed Health Care.
   (5) In the event that the health authority votes to file a
petition of bankruptcy, or the board of supervisors notifies the
department of its intent to terminate the health authority, the
department shall immediately convert the authority's Medi-Cal
beneficiaries to either of the following:
   (A) To other managed care contractors when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (B) To the extent that other managed care contractors are
unavailable or the department determines that the action is otherwise
in the best interest of any particular beneficiary, to a
fee-for-service reimbursement system pending the availability of
managed care contractors, provided those contractors are able to
demonstrate that they can absorb the increased enrollment without
detriment to the provision of health care services to their existing
enrollees, or if the department determines that providing care to any
particular beneficiary pursuant to a fee-for-service reimbursement
system is no longer necessary to protect the continuity of care or
other interests of the beneficiary.  Beneficiary eligibility for
Medi-Cal shall not be affected by this action.  Beneficiaries who
have been or who are scheduled to be converted to a fee-for-service
reimbursement system or managed care contractor may make a choice to
be enrolled in another managed care system, if one is available, in
full compliance with the federal freedom-of-choice requirements.
   (6) The health authority shall submit to a review of financial
records when the department determines, based on data reported by the
health authority or otherwise, that the health authority will not be
able to meet its financial obligations to health care providers
contracting with the health authority.  Where the review of financial
records determines that the health authority will not be able to
meet its financial obligations to contracting health care providers
for the provision of health care services, the director shall
immediately terminate the contract between the health authority and
the state, and immediately convert the health authority Medi-Cal
beneficiaries in accordance with paragraph (5) in order to ensure
uninterrupted provision of health care services to the beneficiaries
and to minimize financial disruption to providers.  The action of the
director shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.  Beneficiaries who have been or who are scheduled to be
converted under paragraph (5) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the health authority shall authorize and
permit the department to administer the number of covered Medi-Cal
enrollments in such a manner that the health authority's provider
network and administrative structure are able to provide appropriate
and timely services to beneficiaries and to participating providers.

   (8) In the event a health authority is terminated, files for
bankruptcy, or otherwise no longer functions for the purpose for
which it was established, the county shall, with respect to
compensation for provision of health care services to beneficiaries,
occupy no greater or lesser status than any other health care
provider in the disbursement of assets of the health authority.
   (9) Nothing in this subdivision shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Health Care under the Knox-Keene Health Care Service Plan Act of
1975, nor shall anything in the section be construed to reduce or
otherwise limit the obligation of a health authority licensed as a
health care service plan to comply with the requirements of the
Knox-Keene Health Care Service Plan Act of 1975, and the rules of the
health commissioner of Corporations promulgated thereunder.
   (t) In the event a health authority may no longer function for the
purposes for which it is established, at the time the health
authority's then-existing obligations have been satisfied or the
health authority's assets have been exhausted, the board of
supervisors may, by ordinance, terminate the health authority.
   (u) (1) Prior to the termination of the health authority, the
board of supervisors shall notify the department of its intent to
terminate the health authority.  The department shall conduct an
audit of the health authority's records within 30 days of the
notification to determine the liabilities and assets of the health
authority.
   (2) The department shall report its findings to the board within
10 days of completion of the audit.  The board shall prepare a plan
to liquidate or otherwise dispose of the assets of the health
authority and to pay the liabilities of the health authority to the
extent of the health authority's assets, and present the plan to the
department within 30 days upon receipt of these findings.
   (v) Any assets of the health authority shall be disposed of
pursuant to provisions contained in the contract entered into between
the state and the health authority pursuant to this section.
   (w) Upon termination of a health authority by the board, the
county shall manage any remaining assets of the health authority
until superseded by a department-approved plan.  Any liabilities of
the health authority shall not become obligations of the county upon
either the termination of the health authority or the liquidation or
disposition of the health authority's remaining assets.
  SEC. 85.  Section 14087.4 of the Welfare and Institutions Code is
amended to read:
   14087.4.  (a) Any contract made pursuant to this article may be
renewed if the provider continues to meet the requirements of this
chapter, regulations promulgated pursuant thereto, and the contract.
Failure to meet these requirements shall be cause for nonrenewal of
the contract.  The department may condition renewal on timely
completion of a mutually agreed upon plan of correction of any
deficiencies.
   (b) The department may terminate or decline to renew a contract,
in whole or in part, when the director determines that such action is
necessary to protect the health of the beneficiaries or the funds
appropriated to carry out the Medi-Cal program.  Nonrenewal or
termination under this article shall not qualify the applicant for an
                                             administrative hearing
including a hearing pursuant to Section 14123.
   (c) In order to achieve maximum cost savings the Legislature
hereby determines that an expedited contract process for contracts
under this article is necessary.  Therefore contracts under this
article shall be exempt from the provisions of Chapter 2 (commencing
with Section 10290) of Part 2 of Division 2 of the Public Contract
Code.
   (d) For any contract entered into pursuant to this article, the
Director of the Department of Managed Health Care shall, at the
director's request and with all due haste, grant an exemption from
the provisions of Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code for purposes of carrying out
the contract.
  SEC. 86.  Section 14087.9705 of the Welfare and Institutions Code
is amended to read:
   14087.9705.  (a) The commission shall obtain licensure as a health
care service plan under Chapter 2.2 (commencing with Section 1340)
of Division 3 of the Health and Safety Code.
   (b) Commencing on the date that the commission first receives
Medi-Cal capitated payments for the provision of health care services
to Medi-Cal beneficiaries and the commission is in full compliance
with all of the requirements regarding tangible net equity applicable
to a health care service plan licensed under Chapter 2.2 (commencing
with Section 1340) of Division 3 of the Health and Safety Code, all
of the following provisions shall apply:
   (1) The commission is authorized to select and design its
automated management information system, subject to the requirement
that the department, in cooperation with the commission, prior to
making capitated payments, approve the system.  The department shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the commission, and any other information that is
generally required by the department in its contracts with other
local initiatives and with health care service plans.
   (2) In addition to the reports required by the Department of
Managed Health Care under Chapter 2.2 (commencing with Section 1340)
of Division 3 of the Health and Safety Code and the rules of the
Director of the Department of Managed Health Care adopted and
promulgated thereunder, the commission shall provide, on a monthly
basis, to the department, the Department of Managed Health Care, and
the members of the commission a copy of the automated report
described in subdivision (a) and a projection of assets and
liabilities, including those that have been incurred but not
reported, with an explanation of material increases or decreases in
current or projected assets and liabilities.  The explanation of
increases and decreases in assets or liabilities shall be provided,
upon request, to a hospital, independent physicians' practice
association, or community clinic that has contracted with the
commission to provide health care services.
   (3) In addition to the reporting and notification requirements to
which the commission is subject under Chapter 2.2 (commencing with
Section 1340) of Division 3 of the Health and Safety Code, the chief
executive officer or director of the commission shall immediately
notify the department, the Department of Managed Health Care, and the
members of the commission, in writing, of any fact or facts that, in
the chief executive officer's or director's reasonable and prudent
judgment, is likely to result in the commission being unable to meet
its financial obligations.  The written notice shall describe the
fact or facts, the anticipated financial consequences, and the
actions that will be taken to address the anticipated consequences.
   (4) In no event shall the Department of Managed Health Care waive
or vary, nor shall the department request the Department of Managed
Health Care to waive or vary, the tangible net equity requirements
for a commission under Chapter 2.2 (commencing with Section 1340) of
Division 3 of the Health and Safety Code after three years after the
date of the commencement of capitated payments to the commission.
Until the commission is in compliance with all of the tangible net
equity requirements under Chapter 2.2 (commencing with Section 1340)
of Division 3 of the Health and Safety Code and the rules of the
Director of the Department of Managed Health Care adopted and
promulgated thereunder, the commission shall develop a stop-loss
program that is appropriate to the risks of the commission.  The
stop-loss program shall be subject to the approval of the department
and the Department of Managed Health Care.
   (5) In the event the commission votes to file a petition of
bankruptcy, or the board of supervisors notifies the department that
it intends to terminate the commission, the department shall
immediately transfer the commission's Medi-Cal beneficiaries to other
managed care contractors, when the contractors are available, and
the contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.  To the extent that other
managed care providers are unavailable or the department determines
that the transfer to the other contractors to a fee-for-service
reimbursement system is in the best interest of any particular
beneficiary, the department shall make that transfer to the
fee-for-service system, pending the availability of managed care
contractors that can demonstrate that they can absorb the increased
enrollment without detriment to the provision of health care services
to their existing enrollees, or until the department determines that
providing care to any particular beneficiary pursuant to a
fee-for-service reimbursement system is no longer necessary to
protect the continuity of care or other interests of the beneficiary.
  Beneficiaries who have been or who are scheduled to be transferred
to a fee-for-service reimbursement system or managed care contractor
may make a choice to be enrolled in another managed care system, if
one is available, in full compliance with federal freedom-of-choice
requirements.
   (6) The commission shall submit to a review of financial records
when the department determines, based on data reported by the
commission or other data received by the department, that the
commission will not be able to meet its financial obligations to
health care providers contracting with the commission.  If the
department, pursuant to a review of financial records under this
paragraph, determines that the commission will not be able to meet
its financial obligation to contracting health care providers for the
provision of health care services, the Director of Health Services
shall immediately terminate the contract between the commission and
the department and shall immediately transfer the commission's
Medi-Cal beneficiaries in accordance with paragraph (5) in order to
ensure uninterrupted provision of health care services to
beneficiaries and to minimize financial disruption.  Beneficiary
eligibility for Medi-Cal shall not be affected by this action.
Beneficiaries who have been or who are scheduled to be transferred
under paragraph (5) may make a choice to be enrolled in another
managed care plan, if one is available, in full compliance with
federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the commission shall authorize the
department to administer the number of covered Medi-Cal enrollments
in a manner that ensures that the commission's provider network and
administrative structure are able to provide appropriate and timely
services to beneficiaries and to participating providers.
   (8) In the event a commission is terminated, files for bankruptcy,
or otherwise no longer functions for the purposes for which it was
established, the county shall, with respect to compensation for
provision of health care services to beneficiaries, occupy no greater
or lesser status than any other health care provider in the
disbursement of assets of the commission.
   (9) Nothing in this section shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Health Care under Chapter 2.2 (commencing with Section 1340) of
Division 3 of the Health and Safety Code, nor shall any thing in this
section be construed to reduce or otherwise limit the obligation of
a commission licensed as a health care plan under Chapter 2.2
(commencing with Section 1340) of Division 3 of the Health and Safety
Code to comply with the requirements of that chapter, and the rules
of the Director of the Department of Managed Health Care adopted
thereunder.
  SEC. 87.  Section 14088.19 of the Welfare and Institutions Code is
amended to read:
   14088.19.  (a) The department may enter into primary care case
management contracts pursuant to this article with any health care
service plan that is licensed by the Director of the Department of
Managed Health Care pursuant to the Knox-Keene Health Care Service
Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code).
   The terms of the contracts entered into pursuant to this section
shall be exempt from those provisions of Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code that
regulate health care service plan contracts.  Nothing in this section
shall preclude the Director of the Department of Managed Health Care
from otherwise regulating a health care service plan subject to the
Knox-Keene Health Service Plan Act of 1975 (Chapter 2.2 (commencing
with Section 1340) of Division 2 of the Health and Safety Code).
   (b) When a health care service plan enters into a contract
pursuant to this article and also pursuant to Chapter 8 (commencing
with Section 14200), there shall be no duplication of service areas
between the two contracts without prior written approval by the
department.
  SEC. 88.  Section 14089 of the Welfare and Institutions Code is
amended to read:
   14089.  (a) The purpose of this article is to provide a
comprehensive program of managed health care plan services to
Medi-Cal recipients residing in clearly defined geographical areas.
It is, further, the purpose of this article to create maximum
accessibility to health care services by permitting Medi-Cal
recipients the option of choosing from among two or more managed
health care plans or fee-for-service managed case arrangements,
including, but not limited to, health maintenance organizations,
prepaid health plans, primary care case management plans.
Independent practice associations, health insurance carriers, private
foundations, and university medical centers systems, not-for-profit
clinics, and other primary care providers, may be offered as choices
to Medi-Cal recipients under this article if they are organized and
operated as managed care plans, for the provision of preventive
managed health care plan services.
   (b) The negotiator may seek proposals and then shall contract
based on relative costs, extent of coverage offered, quality of
health services to be provided, financial stability of the health
care plan or carrier, recipient access to services, cost-containment
strategies, peer and community participation in quality control,
emphasis on preventive and managed health care services and the
ability of the health plan to meet all requirements for both of the
following:
   (1) Certification, where legally required, by the Director of the
Department of Managed Health Care and the Insurance Commissioner.
   (2) Compliance with all of the following:
   (A) The health plan shall satisfy all applicable state and federal
legal requirements for participation as a Medi-Cal managed care
contractor.
   (B) The health plan shall meet any standards established by the
department for the implementation of this article.
   (C) The health plan receives the approval of the department to
participate in the pilot project under this article.
   (c) (1) (A) The proposals shall be for the provision of preventive
and managed health care services to specified eligible populations
on a capitated, prepaid or postpayment basis.
   (B) Enrollment in a Medi-Cal managed health care plan under this
article shall be voluntary for beneficiaries eligible for the federal
Supplemental Security Income for the Aged, Blind, and Disabled
Program (Subchapter 16 (commencing with Section 1381) of Chapter 7 of
Title 42 of the United States Code).
   (2) The cost of each program established under this section shall
not exceed the total amount which the department estimates it would
pay for all services and requirements within the same geographic area
under the fee-for-service Medi-Cal program.
   (d) The department shall enter into contracts pursuant to this
article, and shall be bound by the rates, terms, and conditions
negotiated by the negotiator.
   (e) (1) An eligible beneficiary shall be entitled to enroll in any
health care plan contracted for pursuant to this article that is in
effect for the geographic area in which he or she resides.
Enrollment shall be for a minimum of six months.  Contracts entered
into pursuant to this article shall be for at least one but no more
than three years.  The director shall make available to recipients
information summarizing the benefits and limitations of each health
care plan available pursuant to this section in the geographic area
in which the recipient resides.
   (2) No later than 30 days following the date a Medi-Cal or AFDC
recipient is informed of the health care options described in
paragraph (1) of subdivision (e), the recipient shall indicate his or
her choice in writing of one of the available health care plans and
his or her choice of primary care provider or clinic contracting with
the selected health care plan.
   (3) The health care options information described in paragraph (1)
of subdivision (e) shall include the following elements:
   (A) Each beneficiary or eligible applicant shall be provided with
the name, address, telephone number, and specialty, if any, of each
primary care provider, and each clinic participating in each health
care plan.  This information shall be presented under geographic area
designations in alphabetical order by the name of the primary care
provider and clinic.  The name, address, and telephone number of each
specialist participating in each health care plan shall be made
available by contacting the health care options contractor or the
health care plan.
   (B) Each beneficiary or eligible applicant shall be informed that
he or she may choose to continue an established patient-provider
relationship in a managed care option, if his or her treating
provider is a primary care provider or clinic contracting with any of
the health plans available and has the available capacity and agrees
to continue to treat that beneficiary or eligible applicant.
   (C) Each beneficiary or eligible applicant shall be informed that
if he or she fails to make a choice, he or she shall be assigned to,
and enrolled in, a health care plan.
   (4) At the time the beneficiary or eligible applicant selects a
health care plan, the department shall, when applicable, encourage
the beneficiary or eligible applicant to also indicate, in writing,
his or her choice of primary care provider or clinic contracting with
the selected health care plan.
   (5) Commencing with the implementation of a geographic managed
care project in a designated county, a Medi-Cal or AFDC beneficiary
who does not make a choice of health care plans in accordance with
paragraph (2), shall be assigned to and enrolled in an appropriate
health care plan providing service within the area in which the
beneficiary resides.
   (6) If a beneficiary or eligible applicant does not choose a
primary care provider or clinic, or does not select any primary care
provider who is available, the health care plan selected by or
assigned to the beneficiary shall ensure that the beneficiary selects
a primary care provider or clinic within 30 days after enrollment or
is assigned to a primary care provider within 40 days after
enrollment.
   (7) Any Medi-Cal or AFDC beneficiary dissatisfied with the primary
care provider or health care plan shall be allowed to select or be
assigned to another primary care provider within the same health care
plan.  In addition, the beneficiary shall be allowed to select or be
assigned to another health care plan contracted for pursuant to this
article that is in effect for the geographic area in which he or she
resides in accordance with Section 1903(m)(2)(F)(ii) of the Social
Security Act.
   (8) The department or its contractor shall notify a health care
plan when it has been selected by or assigned to a beneficiary.  The
health care plan that has been selected or assigned by a beneficiary
shall notify the primary care provider that has been selected or
assigned.  The health care plan shall also notify the beneficiary of
the health care plan and primary care provider selected or assigned.

   (9) This section shall be implemented in a manner consistent with
any federal waiver that is required to be obtained by the department
to implement this section.
   (f) A participating county may include within the plan or plans
providing coverage pursuant to this section, employees of county
government, and others who reside in the geographic area and who
depend upon county funds for all or part of their health care costs.

   (g) The negotiator and the department shall establish pilot
projects to test the cost-effectiveness of delivering benefits as
defined in subdivisions (a) to (f), inclusive.
   (h) The California Medical Assistance Commission shall evaluate
the cost-effectiveness of these pilot projects after one year of
implementation.  Pursuant to this evaluation the commission may
either terminate or retain the existing pilot projects.
   (i) Funds may be provided to prospective contractors to assist in
the design, development, and installation of appropriate programs.
The award of these funds shall be based on criteria established by
the department.
   (j) In implementing this article, the department may enter into
contracts for the provision of essential administrative and other
services.  Contracts entered into under this subdivision may be on a
noncompetitive bid basis and shall be exempt from Chapter 2
(commencing with Section 10290) of Part 2 of Division 2 of the Public
Contract Code.
  SEC. 89.  Section 14089.4 of the Welfare and Institutions Code is
amended to read:
   14089.4.  The negotiator may consult with the Department of
Insurance or the Department of Managed Health Care and shall consult
with the Department of Justice Medi-Cal Fraud Unit, the appropriate
licensing boards and the laboratory field services unit of the
department for the purposes of determining the qualifications,
performance capability, and financial stability of prospective
contractors.
  SEC. 90.  Section 14139.13 of the Welfare and Institutions Code is
amended to read:
   14139.13.  (a) Any contract entered into pursuant to this article
may be renewed if the long-term care services agency continues to
meet the requirements of this article and the contract.  Failure to
meet these requirements shall be cause for nonrenewal of the
contract.  The department may condition renewal on timely completion
of a mutually agreed upon plan of corrections of any deficiencies.
   (b) The department may terminate or decline to renew a contract in
whole or in part when the director determines that the action is
necessary to protect the health of the beneficiaries or the funds
appropriated to the Medi-Cal program.  The administrative hearing
requirements of Section 14123 do not apply to the nonrenewal or
termination of a contract under this article.
   (c) In order to achieve maximum cost savings the Legislature
hereby determines that an expedited contract process for contracts
under this article is necessary.  Therefore, contracts under this
article shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.
   (d) The Director of the Department of Managed Health Care shall,
at the director's request, immediately grant an exemption from
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code for purposes of carrying out any contract
entered into pursuant to this article.
  SEC. 91.  Section 14251 of the Welfare and Institutions Code is
amended to read:
   14251.  "Prepaid health plan" means any plan which meets all of
the following criteria:
   (a) Licensed as a health care service plan by the Director of the
Department of Managed Health Care pursuant to the Knox-Keene Health
Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section
1340), Division 2, Health and Safety Code), other than a plan
organized and operating pursuant to Section 10810 of the Corporations
Code which substantially indemnifies subscribers or enrollees for
the cost of provided services, or has an application for licensure
pending and was registered under the Knox-Mills Health Plan Act prior
to its repeal (Chapter 941, Statutes of 1975) or licensed as a
nonprofit hospital service plan by the Insurance Commissioner
pursuant to Section 11493(e) and Sections 11501 to 11505 of the
Insurance Code.
   (b) Meets the requirements for participation in the Medicaid
Program (Title XIX of the Social Security Act) on an at risk basis.
   (c) Agrees with the State Department of Health Services to furnish
directly or indirectly health services to Medi-Cal beneficiaries on
a predetermined periodic rate basis.
   "Prepaid health plan" includes any organization which is licensed
as a plan pursuant to the Knox-Keene Health Care Service Plan Act of
1975 and is subject to regulation by the Department of Managed Health
Care pursuant to that act, and which contracts with the State
Department of Health Services solely as a fiscal intermediary at
risk.
   Except for the requirement of licensure pursuant to the Knox-Keene
Act, the State Director of Health Services may waive any provision
of this chapter which the director determines is inappropriate for a
fiscal intermediary at risk.  Any such exemption or waiver shall be
set forth in the fiscal intermediary at risk contract with the State
Department of Health Services.
   "Fiscal intermediary at risk" means any entity which entered into
a contract with the State Department of Health Services on a pilot
basis pursuant to subdivision (f) of Section 14000, as in effect June
1, 1973, in accordance with which the entity received capitated
payments from the state and reimbursed providers of health care
services on a fee-for-service or other basis for at least the basic
scope of health care services, as defined in Section 14256, provided
to all beneficiaries covered by the contract residing within a
specified geographic region of the state. The fiscal intermediary at
risk shall be at risk for the cost of administration and utilization
of services or the cost of services, or both, for at least the basic
scope of health care services, as defined in Section 14256, provided
to all beneficiaries covered by the contract residing within a
specified geographic region of the state.  The fiscal intermediary at
risk may share the risk with providers or reinsuring agencies or
both. Eligibility of beneficiaries shall be determined by the State
Department of Health Services and capitation payments shall be based
on the number of beneficiaries so determined.
  SEC. 92.  Section 14308 of the Welfare and Institutions Code is
amended to read:
   14308.  (a) Each prepaid health plan shall furnish to the director
such information and reports as required by Title XIX of the federal
Social Security Act.
   (b) The director may require a prepaid health plan to provide the
director with information and reports which are furnished by the
prepaid health plan to the Director of the Department of Managed
Health Care pursuant to the provisions of Chapter 2.2 (commencing
with Section 1340), Division 2, of the Health and Safety Code, the
Knox-Keene Health Care Service Plan Act of 1975, or to the Insurance
Commissioner pursuant to the provisions of Chapter 11A (commencing
with Section 11491) of Part 2 of Division 2 of the Insurance Code, as
appropriate.
   (c) The director may, by regulation, require plans to furnish
statistical information to the extent such information is necessary
for the department to establish rates of payment pursuant to Section
14301 and to provide reports pursuant to Section 14313.  The
department shall, to the extent feasible, accept this information in
a form which is consistent with reports required to be provided
pursuant to the Knox-Keene Health Care Service Plan Act of 1975, or
to Chapter 11A (commencing with Section 11491) of Part 2 of Division
2 of the Insurance Code, as appropriate.  In the case of a hospital
based plan which is a health maintenance organization qualified
pursuant to Title XIII of the federal Public Health Service Act, and
which has more than one million enrollees, of whom less than 10
percent are Medi-Cal enrollees, information required pursuant to this
subdivision shall consist of reports required to be made to the
Department of Health, Education and Welfare pursuant to Title XIII of
the federal Public Health Service Act.
  SEC. 93.  Section 14456 of the Welfare and Institutions Code is
amended to read:
   14456.  The department shall conduct annual medical audits of each
prepaid health plan unless the director determines there is good
cause for additional reviews.
   The reviews shall use the standards and criteria established
pursuant to the Knox-Keene Health Care Service Plan Act of 1975, or
to Chapter 11A (commencing with Section 11491) of Part 2 of Division
2 of the Insurance Code, as appropriate.  Except in those instances
where major unanticipated administrative obstacles prevent, or after
a determination by the director of good cause, the reviews shall be
scheduled and carried out jointly with reviews carried out pursuant
to the Knox-Keene Health Care Service Plan Act of 1975, or to Chapter
11A (commencing with Section 11491) of Part 2 of Division 2 of the
Insurance Code, as appropriate, if reviews under either act will be
carried out within time periods which satisfy the requirements of
federal law.

The department shall be authorized to contract with professional
organizations or the Department of Managed Health Care or the
Department of Insurance, as appropriate, to perform the periodic
review required by this section.  The department, or its designee,
shall make a finding of fact with respect to the ability of the
prepaid health plan to provide quality health care services,
effectiveness of peer review, and utilization control mechanisms, and
the overall performance of the prepaid health plan in providing
health care benefits to its enrollees.
  SEC. 94.  Section 14457 of the Welfare and Institutions Code is
amended to read:
   14457.  In addition to the reviews required or authorized by
Section 14456, the department shall conduct periodic onsite visits or
additional visits after a determination by the director of good
cause by departmental representatives to include observation of the
general operation of the prepaid health plan, the condition of the
facilities for delivering health care, the availability of emergency
services, the degree of satisfaction of the enrollees, the operation
of the plan's grievance system, and the administrative and financial
aspects of the operation of the prepaid health plan.
   Except when reviewing a plan's grievance system or marketing
activities, this evaluation shall use standards and criteria
established pursuant to the Knox-Keene Health Care Service Plan Act
of 1975, or to Chapter 11A (commencing with Section 11491) of Part 2
of Division 2 of the Insurance Code, as appropriate.  Except in those
instances where major, unanticipated administrative obstacles
prevent, or after a determination by the director of good cause, the
visits shall be scheduled and carried out jointly with reviews
carried out pursuant to the Knox-Keene Health Care Service Plan Act
of 1975, or to Chapter 11A (commencing with Section 11491) of Part 2
of Division 2 of the Insurance Code, as appropriate, if reviews under
either act will be carried out within time periods which satisfy the
requirements of federal law.
   The State Department of Health Services may contract with the
Department of Managed Health Care or the Department of Insurance, as
appropriate, to perform the periodic visits required by this section.

  SEC. 95.  Section 14459 of the Welfare and Institutions Code is
amended to read:
   14459.  (a) The prepaid health plan shall maintain financial
records and shall have an annual audit or additional audits after a
determination by the director of good cause, performed by an
independent certified public accountant. A prepaid health plan
operated by a public entity shall have an annual audit performed in a
manner approved by the department.  All certified financial
statements shall be filed with the department as soon as practical
after the end of the prepaid health plan's fiscal year and in any
event, within a period not to exceed 90 days thereafter.  These
financial statements shall be filed with the department and shall be
public records.  The department shall perform routine auditing of
prepaid health plan contractors and their affiliated subcontractors.
Except in those instances where major unanticipated obstacles
prevent, or after a determination by the director of good cause, the
audits shall be scheduled and carried out jointly with audits carried
out pursuant to the Knox-Keene Health Care Service Plan Act of 1975,
or to Chapter 11A (commencing with Section 11491) of Part 2 of
Division 2 of the Insurance Code, as appropriate, if audits under
either act are carried out within time periods which satisfy the
requirements of federal law.  The department is authorized to
contract with the Department of Managed Health Care or the Department
of Insurance, as appropriate, to carry out the audits required by
this section.  The prepaid health plan shall make all of its books
and records available for inspection, examination or copying by the
department during normal working hours at the prepaid health plan's
principal place of business or at such other place in California as
the department shall designate.  For good cause, the department may
grant an exception to the time when annual financial statements are
to be submitted to the department.  The annual report required in
Section 14313 shall include an itemization of expenditures made by
each prepaid health plan for the following categories of
expenditures:  physician services, inpatient and outpatient hospital
services, pharmaceutical services and prescription drugs, dental
services, medical transportation services, vision care services,
mental health services, laboratory services, X-ray services, enrollee
education programs, marketing and enrollment costs, data-processing
costs, other administrative costs and health service expenditures and
any payments made to subcontractors, and the purposes of the
payments, including but not limited to, contributions to election
campaigns.
   (b) The requirements of a financial and administrative review by
the department of any health care service plan licensed by the
Director of the Department of Managed Health Care pursuant to Chapter
2.2 (commencing with Section 1340) of Division 2 of the Health and
Safety Code may be waived upon submission of the financial audit for
the same period conducted by the Department of Managed Health Care
pursuant to Section 1382 of the Health and Safety Code.
  SEC. 96.  Section 14460 of the Welfare and Institutions Code is
amended to read:
   14460.  A schedule of reviews, visits, and audits shall be jointly
established by the Department of Managed Health Care or the
Department of Insurance, as the case may be, and the State Department
of Health Services.  Nothing in Section 14456, 14457, or 14459 shall
be construed to prohibit the State Department of Health Services
from conducting reviews, visits, or audits either jointly or
individually, for the purpose of following up on findings resulting
from reviews, visits, or audits carried out in accordance with this
chapter.
  SEC. 97.  Section 14482 of the Welfare and Institutions Code is
amended to read:
   14482.  No prepaid health plan shall contract with any
subcontractor other than the plan's subsidiary corporation, its
parent corporation, or another subsidiary of its parent corporation,
or an affiliate of the prepaid health plan whose financial statements
are consolidated with that of the prepaid health plan at the time of
the annual audit by the independent auditors of the plan and when
the quarterly and annual financial statements are filed with the
Director of the Department of Managed Health Care, if any of the
following persons connected with the plan have a substantial
financial interest, as defined by Section 14478, in such
subcontractor:
   (a) Any person also having a substantial financial interest in the
plan.
   (b) Any director, officer, partner, trustee, or employee of the
plan.
   (c) Any member of the immediate family of any person designated in
(a) or (b).
  SEC. 98.  Section 14499.71 of the Welfare and Institutions Code is
amended to read:
   14499.71.  For the purposes of this article, "fiscal intermediary"
means an entity that agrees to pay for covered services provided to
Medi-Cal eligibles in exchange for a premium, subscription charge, or
capitation payment; to assume an underwriting risk; and is either
licensed by the Director of the Department of Managed Health Care
under the Knox-Keene Health Care Service Plan Act of 1975 (Chapter
2.2 (commencing with Section 1340) of Division 2 of the Health and
Safety Code) or is licensed as a nonprofit hospital service plan by
the Insurance Commissioner pursuant to subdivision (e) of Section
11493 of the Insurance Code and Sections 11501 to 11505, inclusive,
of the Insurance Code.
  SEC. 99.  (a) Any section of any act enacted by the Legislature
during the 2000 calendar year that takes effect on or before January
1, 2001, and that amends, amends and renumbers, adds, repeals and
adds, or repeals a section that is amended, amended and renumbered,
added, repealed and added, or repealed by this act, shall prevail
over this act, whether that act is enacted prior to, or subsequent
to, the enactment of this act.  The repeal, or repeal and addition,
of any article, chapter, part, title, or division of any code by this
act shall not become operative if any section of any other act that
is enacted by the Legislature during the 2000 calendar year and takes
effect on or before January 1, 2001, amends, amends and renumbers,
adds, repeals and adds, or repeals any section contained in that
article, chapter, part, title, or division.
   (b) Subdivision (a) shall not apply to the following:
   (1) Health and Safety Code Sections 1341.7, 1343, 1363, 1367.25,
1368.2, 1374.30, 1374.32, 1383.15, 1391.5, and 1398.
   (2) Insurance Code Sections 742.435, 10169, 10169.2, 10169.3,
10169.5 and 10279.
  SEC. 100.  (a) The Department of Managed Care shall hereafter be
known as the Department of Managed Health Care in all statutes that
reference the Department of Managed Care.
   (b) The Advisory Committee on Managed Care shall hereafter be
known as the Advisory Committee on Managed Health Care in all
statutes that reference the Advisory Committee on Managed Care.
   (c) The Managed Care Fund shall hereafter be known as the Managed
Health Care Fund in all statutes that reference the Managed Care
Fund.
